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Capitalising on European analyst earnings estimates and recommendations during different volatility regime periods

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  • Andrea S Au

    (State Street Global Advisors)

Abstract

Examining market-adjusted cumulative abnormal returns following European analyst earnings estimate and recommendation announcements, I find that both factors are significant when considered unconditionally and conditional on each other. When examining the strength of these factors during different market regime periods, however, I find that when the market or stock volatility for a given month is unusually high or dispersion between the market and stock volatilities is unusually low, the significance of both the EPS estimate and recommendation factors decreases or is non-existent. In addition, the least favourable quintile of securities — as measured by change in the earnings or recommendation factor — no longer exhibits the least favourable market-adjusted cumulative abnormal return. Since volatility is somewhat persistent, modifying analyst factor models based on recent market environments increases potential portfolio returns.

Suggested Citation

  • Andrea S Au, 2007. "Capitalising on European analyst earnings estimates and recommendations during different volatility regime periods," Journal of Asset Management, Palgrave Macmillan, vol. 8(2), pages 74-85, July.
    • Handle: RePEc:pal:assmgt:v:8:y:2007:i:2:d:10.1057_palgrave.jam.2250062
    DOI: 10.1057/palgrave.jam.2250062
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