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When analysts encounter lottery-like stocks: lottery-like stocks and analyst stock recommendations

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  • Mei-Chen Lin

    (National Taipei University)

Abstract

The primary aim of this study is to determine whether there is any association between stocks with lottery-like characteristics and the analyst revisions carried out on such stocks. Given that lottery-like stocks generally tend to be overpriced and have inferior performance to non-lottery-like stocks, analysts are more likely to issue downgrade recommendations on the former than the latter. Analysts have the ability to identify which lottery-like stocks are ‘dark horses’ with good investment potential, and indeed, their revisions on lottery-like stocks are generally found to have a larger stock-price impact than those on non-lottery-like stocks. Lottery-like stocks are also associated with sentiment-driven overpricing, with market sentiment potentially strengthening the negative price response to revisions from ‘buy’ to ‘sell’ for lottery-like stocks; however, such sentiment can also weaken the positive price response to revisions from ‘sell’ to ‘buy’ for lottery-like stocks.

Suggested Citation

  • Mei-Chen Lin, 2020. "When analysts encounter lottery-like stocks: lottery-like stocks and analyst stock recommendations," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 327-353, July.
    • Handle: RePEc:kap:rqfnac:v:55:y:2020:i:1:d:10.1007_s11156-019-00845-0
    DOI: 10.1007/s11156-019-00845-0
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    3. Lin, Mei-Chen, 2023. "Analyst coverage and the idiosyncratic skewness effect in the Taiwan stock market," International Review of Financial Analysis, Elsevier, vol. 85(C).

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    More about this item

    Keywords

    Lottery-like stocks; Stock recommendations; Investor sentiment;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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