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Are financial analysts eager postmen of bubble psychology? Evidence in the United Kingdom

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  • William P. Forbes
  • Áine Murphy
  • Cormac O'Keeffe
  • Chen Su

Abstract

This paper examines the investment value of financial analysts' advice (earnings forecasts and stock recommendations) to shareholders around two recent bubble periods in the United Kingdom: the dot‐com bubble period and the credit bubble period. We find that analysts' advice is valuable at the firm level, as reflected in their recommendations for high‐tech stocks before and after the dot‐com bubble burst. However, at the aggregate level, in neither bubble period do we uncover a stable relation between average stock returns and analysts' advice. The key to the lack of predictive power of analysts' advice does not seem to be their predictable nature, as the responsiveness of returns to such news, predicted or not, varies widely around the bubble periods studied.

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  • William P. Forbes & Áine Murphy & Cormac O'Keeffe & Chen Su, 2020. "Are financial analysts eager postmen of bubble psychology? Evidence in the United Kingdom," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 120-137, January.
    • Handle: RePEc:wly:ijfiec:v:25:y:2020:i:1:p:120-137
    DOI: 10.1002/ijfe.1732
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    Cited by:

    1. Qifa Xu & Junqing Zuo & Cuixia Jiang & Yaoyao He, 2021. "A large constrained time‐varying portfolio selection model with DCC‐MIDAS: Evidence from Chinese stock market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3417-3435, July.
    2. Chen Su & Hanxiong Zhang & Nathan Lael Joseph, 2022. "The performance of UK stock recommendation revisions: Does brokerage house reputation matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3051-3070, July.

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