On the efficiency contributions of analyst recommendations to financial markets

Youngmin Choi and Suzanne S. Lee

Journal of Financial Markets, 2025, vol. 75, issue C

Abstract: We focus on the fundamental role of security analysts as information intermediaries using recent advances in the realized variance literature. We construct a signal-to-noise volatility ratio to examine the heterogeneity in the efficiency contributions of analysts’ recommendations while controlling for the noise contained in price data. We find that only analysts’ revisions with greater efficiency contributions generate significant stock price reactions in the directions expected by the analysts. Furthermore, these revisions increase the degree of informed trading in the options market and reduce the uncertainty related to the covered firms.

Keywords: Analyst recommendations; Stock price efficiency; Market microstructure noise; High-frequency data; Implied volatility (search for similar items in EconPapers)
JEL-codes: G10 G14 G24 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:75:y:2025:i:c:s1386418125000254

DOI: 10.1016/j.finmar.2025.100985

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