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On the efficiency contributions of analyst recommendations to financial markets

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  • Choi, Youngmin
  • Lee, Suzanne S.

Abstract

We focus on the fundamental role of security analysts as information intermediaries using recent advances in the realized variance literature. We construct a signal-to-noise volatility ratio to examine the heterogeneity in the efficiency contributions of analysts’ recommendations while controlling for the noise contained in price data. We find that only analysts’ revisions with greater efficiency contributions generate significant stock price reactions in the directions expected by the analysts. Furthermore, these revisions increase the degree of informed trading in the options market and reduce the uncertainty related to the covered firms.

Suggested Citation

  • Choi, Youngmin & Lee, Suzanne S., 2025. "On the efficiency contributions of analyst recommendations to financial markets," Journal of Financial Markets, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:finmar:v:75:y:2025:i:c:s1386418125000254
    DOI: 10.1016/j.finmar.2025.100985
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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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