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Valuing Intel: A Strange Tale of Analysts and Announcements

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  • Cornell, Bradford

Abstract

This paper examines the market reaction to a press release issued by Intel on Thursday, September 21, 2000. In response to that release, Intel’s stock price dropped 30 percent, erasing over $120 billion of shareholder wealth. By analyzing the press release in conjunction with analyst reports and by using a discounted cash flow valuation model, it is argued that the information conveyed by the announcement was not sufficient to explain the stock price drop. In an effort to explain this controversial conclusion, the paper documents the puzzling and procyclical role of analysts’ recommendations regarding Intel. Surprisingly, analysts were more strongly recommending purchase of the stock in August at $75 than they were recommending purchase in September at $40. This suggests a positive feedback between stock price movements and analyst recommendations that may increase the volatility of prices.

Suggested Citation

  • Cornell, Bradford, 2000. "Valuing Intel: A Strange Tale of Analysts and Announcements," University of California at Los Angeles, Anderson Graduate School of Management qt4dm1h6qh, Anderson Graduate School of Management, UCLA.
    • Handle: RePEc:cdl:anderf:qt4dm1h6qh
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    References listed on IDEAS

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    1. Summers, Lawrence H, 1986. "Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
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    3. Amitabh Dugar & Siva Nathan, 1995. "The Effect of Investment Banking Relationships on Financial Analysts' Earnings Forecasts and Investment Recommendations," Contemporary Accounting Research, John Wiley & Sons, vol. 12(1), pages 131-160, September.
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    6. repec:bla:jfinan:v:44:y:1989:i:5:p:1385-99 is not listed on IDEAS
    7. Kaplan, Steven N & Ruback, Richard S, 1995. "The Valuation of Cash Flow Forecasts: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 50(4), pages 1059-1093, September.
    8. De Bondt, Werner F M & Thaler, Richard H, 1990. "Do Security Analysts Overreact?," American Economic Review, American Economic Association, vol. 80(2), pages 52-57, May.
    9. Chopra, Navin & Lakonishok, Josef & Ritter, Jay R., 1992. "Measuring abnormal performance : Do stocks overreact?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 235-268, April.
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    Cited by:

    1. Brian M. Lucey & Michael Dowling, 2005. "The Role of Feelings in Investor Decision‐Making," Journal of Economic Surveys, Wiley Blackwell, vol. 19(2), pages 211-237, April.

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