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Information Content of Equity Analyst Reports

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  • Asquith, Paul
  • Mikhail, Michael
  • Au, Andrea

Abstract

This paper catalogs the complete text of a large sample of All-American Analyst reports and examines the market reaction to the information released. It shows that the text of the report, which provides the justifications supporting an analyst's summary opinion, provides information beyond that contained in earnings forecasts, recommendation levels, and price targets. Including the strength of the analyst's justifications, reduces, and in some models eliminates, the significance of the information available in earnings forecasts and recommendation revisions. By controlling for the simultaneous release of other information, we show that analyst reports do not merely repeat firm releases of information, but also provide both new information and/or interpretation of previously released information to the market. By examining whether the market's reaction differs by report type (i.e. upgrade, reiteration, or downgrade), we demonstrate that information in a report is most important for downgrades and that target prices and the strength of the justifications are the only elements that matter for reiterations. Finally, we find no correlation between the valuation methodology used by analysts and either the market's reaction to a report's release or the analyst's accuracy. Our adjusted R2 of nearly 26% is three or four times larger than that of other studies using only partial content from analyst reports.

Suggested Citation

  • Asquith, Paul & Mikhail, Michael & Au, Andrea, 2004. "Information Content of Equity Analyst Reports," Working papers 4264-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    • Handle: RePEc:mit:sloanp:7345
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    File URL: http://hdl.handle.net/1721.1/7345
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    References listed on IDEAS

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    Cited by:

    1. Mikhail, Michael B. & Walther, Beverly R. & Willis, Richard H., 2004. "Do security analysts exhibit persistent differences in stock picking ability?," Journal of Financial Economics, Elsevier, vol. 74(1), pages 67-91, October.
    2. Guo, Li & Li, Frank Weikai & John Wei, K.C., 2020. "Security analysts and capital market anomalies," Journal of Financial Economics, Elsevier, vol. 137(1), pages 204-230.

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    Keywords

    Stock recommendations; price targets; earnings forecasts; security analysts;
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