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Is Sell‐Side Research More Valuable in Bad Times?

Author

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  • ROGER K. LOH
  • RENÉ M. STULZ

Abstract

Because uncertainty is high in bad times, investors find it harder to assess firm prospects and hence should value analyst output more. However, higher uncertainty makes analysts’ tasks harder, so it is unclear whether analyst output is more valuable in bad times. We find that in bad times, analyst revisions have a larger stock‐price impact, earnings forecast errors per unit of uncertainty fall, and analyst reports are more frequent and longer. The increased impact of analysts is also more pronounced for harder‐to‐value firms. These results are consistent with analysts working harder and investors relying more on analysts in bad times.

Suggested Citation

  • Roger K. Loh & René M. Stulz, 2018. "Is Sell‐Side Research More Valuable in Bad Times?," Journal of Finance, American Finance Association, vol. 73(3), pages 959-1013, June.
    • Handle: RePEc:bla:jfinan:v:73:y:2018:i:3:p:959-1013
    DOI: 10.1111/jofi.12611
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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances

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