The Cross-Section of Analyst Recommendations
We analyze the relation between analyst attributes (years of experience, reputation of the analystsâ€™ brokerage houses) and the short- and long-term price reactions to recommendations made by the analysts. We find that in the long-term, the recommendation changes of highly experienced analysts outperform those of low-experience ones. In addition, investors appear to overreact to dramatic upgrades of low-ability analysts, and underreact to small upgrades by high-ability analysts. These results are consistent with the Griï¬ƒn and Tversky (1992) argument that agents place too much emphasis on the strength of the signal (the dramatic nature of the event) and insuï¬ƒcient emphasis on the weight (the ability of the analyst making the recommendation). The study helps promote an understanding of the analyst industry and its interaction with the investing population.
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