Authors: Yi Liu, Tomas Mantecon, Samuel H. Szewczyk
Addresses: University of North Texas, College of Business, 1155 Union Circle #311160, Denton, TX 72603, USA. ' University of North Texas, College of Business, 1155 Union Circle #311160, Denton, TX 72603, USA. ' Drexel University, 3141 Chestnut St., Philadelphia, PA 19104, USA
Abstract: Using all available 385,342 initiations, upgrades, and downgrades of equity analysts| recommendations between 1980 and 2008 from First Call, we explore both the short-term and long-term market reactions following those announcements. We found significant positive/negative announcement abnormal returns following upgrades/downgrades. However, we only found significant drift following downgrades. We found that initiations with neutral rating were also followed by significant negative abnormal returns, suggesting that investors adjust for the positive rating bias in initiations. We also found significant drift for initiations with sell or strong sell. Investors still underestimate the negative information contained in initiation with bad ratings. Overall, our evidences support the argument that analysts| recommendations have investment values, but suggest the market under-reacts to negative rating initiations or downgrades.
Keywords: analyst recommendations; recommendation revisions; financial analysts; equity analysts; abnormal returns; drift; investment value; negative rating initiations; downgrades.
International Journal of Banking, Accounting and Finance, 2011 Vol.3 No.2/3, pp.118 - 132
Published online: 23 Jul 2011 *Full-text access for editors Access for subscribers Purchase this article Comment on this article