Security analysts and capital market anomalies
We examine whether analysts use information in well-known stock return anomalies when making recommendations. We find results contrary to the common view that analysts are sophisticated information intermediaries who help improve market efficiency. Specifically, when analysts make more favorable rec...
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| Main Authors: | , , |
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| Format: | text |
| Language: | English |
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Institutional Knowledge at Singapore Management University
2020
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| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/lkcsb_research/5937 https://ink.library.smu.edu.sg/context/lkcsb_research/article/6936/viewcontent/SSRN_id3101672.pdf |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | We examine whether analysts use information in well-known stock return anomalies when making recommendations. We find results contrary to the common view that analysts are sophisticated information intermediaries who help improve market efficiency. Specifically, when analysts make more favorable recommendations to stocks classified as overvalued, these stocks tend to have particularly large negative abnormal returns ex post. Moreover, analysts whose recommendations are more aligned with anomaly signals are more skilled and elicit greater recommendation announcement returns. Our results suggest that analysts' biased recommendations could be a source of market frictions that impede the efficient correction of mispricing. |
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