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What determines the value of recommendation change? A preliminary analysis

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  • Omar Farooq

Abstract

This article determines the condition under which recommendation changes relative to consensus recommendation and recommendation changes relative to analyst’s previous recommendation are valuable. We show that recommendation upgrades (downgrades) relative to consensus recommendation are followed by significantly positive (negative) short-term returns whenever consensus recommendation represents convergence of analysts’ opinions. We also show that as the standard deviation associated with consensus recommendation increase, the value of recommendation changes reduce significantly. This article also shows that recommendation upgrades (downgrades) relative to analyst’s previous recommendation are followed by significantly positive (negative) short-term returns whenever interval between two consecutive recommendations is relatively short. We also show that, as the interval between two consecutive recommendations increase, the value of recommendation changes reduce significantly. Our results are robust across various subsamples based on size and region.

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  • Omar Farooq, 2017. "What determines the value of recommendation change? A preliminary analysis," Applied Economics, Taylor & Francis Journals, vol. 49(16), pages 1557-1570, April.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:16:p:1557-1570
    DOI: 10.1080/00036846.2016.1221043
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    Cited by:

    1. Ishigami, Shohei & Takeda, Fumiko, 2018. "Market reactions to stock rating and target price changes in analyst reports: Evidence from Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 52(C), pages 134-151.
    2. Jaeyong Lee & Jonathan A. Batten & Hyuna Ham & Doojin Ryu, 2024. "Does Portfolio Momentum Beat Analyst Advice?," Abacus, Accounting Foundation, University of Sydney, vol. 60(2), pages 338-364, June.
    3. Ahmed Bouteska & Mehdi Mili, 2022. "Does corporate governance affect financial analysts’ stock recommendations, target prices accuracy and earnings forecast characteristics? An empirical investigation of US companies," Empirical Economics, Springer, vol. 63(4), pages 2125-2171, October.

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