Information Misweighting and Stock Recommendations

Jose Vicente Martinez

No 59, SIFR Research Report Series from Institute for Financial Research

Abstract: I provide evidence that analysts whose earnings forecast revisions showed signs of greater exaggeration in the past make recommendation changes that lead to lower abnormal returns than their peers. Interpreting stock recommendations as a forecast of future abnormal returns, I show that this evidence is consistent with the hypothesis that analysts who typically exaggerate or overstate the weight of their private information when issuing forecasts also do so when making recommendations. I also show that past earnings forecast provide incremental information about analysts' recommending behavior beyond that contained in past recommendations.

Keywords: Information misweighting; stock recommendations; earnings forecasts; financial analysts (search for similar items in EconPapers)
JEL-codes: G14 G24 J44 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2007-07-15
New Economics Papers: this item is included in nep-for
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