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How Do Analyst Recommendations Respond to Major News?

Conrad, Jennifer and Cornwell, Bradford and Landsman, Wayne R. and Rountree, Brian R. (2006) How Do Analyst Recommendations Respond to Major News? Journal of Financial and Quantitative Analysis, 41 (1). pp. 25-49. ISSN 0022-1090.

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We examine how analysts respond to public information when setting stock recommendations. We model the determinants of analysts’ recommendation changes following large stock price movements. We find evidence of an asymmetry following large positive and negative returns. Following large stock price increases, analysts are equally likely to upgrade or downgrade. Following large stock price declines, analysts are more likely to downgrade. This asymmetry exists after accounting for investment banking relationships and herding behavior. This result suggests recommendation changes are “sticky” in one direction, with analysts reluctant to downgrade. Moreover, this result implies that analysts’ optimistic bias may vary through time.

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Additional Information:© 2006 School of Business Administration, University of Washington. The authors thank IBES for providing IBES analyst recommendations. The authors also thank workshop participants at the 2002 American Accounting Association Annual Meeting, UCLA, University of Chicago, the 2002 London Business School Summer Symposium, University of Iowa, and University of North Carolina, Ivo Welch (associate editor and referee), and Hendrik Bessembinder (the editor). Conrad and Landsman acknowledge financial support from the Center for Finance and Accounting Research at the University of North Carolina at Chapel Hill.
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Official Citation:How Do Analyst Recommendations Respond to Major News? Jennifer Conrad, Bradford Cornell, Wayne R. Landsman and Brian R. Rountree The Journal of Financial and Quantitative Analysis Vol. 41, No. 1 (Mar., 2006), pp. 25-49 Published by: University of Washington School of Business Administration Article Stable URL:
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ID Code:22121
Deposited On:11 Feb 2011 21:10
Last Modified:03 Oct 2019 02:34

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