Psychological Aspects of Stock Price Drifts Following Analyst Recommendation Revisions

Andrey Kudryavtsev

Chapter 6 in Behavioral Finance:A Novel Approach, 2020, pp 131-154 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In this chapter, I sketch the picture emerging from two studies of mine dealing with psychological aspects of immediate and longer-term stock price reactions to analyst recommendation revisions. These studies demonstrate that: (i) if on the day of a recommendation upgrade (downgrade), the respective stock’s abnormal return is negative (positive), then the stock’s cumulative abnormal returns for the period of up to half a year following the recommendation upgrade (downgrade) tend to be higher (lower), and (ii) cumulative abnormal stock returns during half a year following analyst recommendation upgrades (downgrades) tend to be higher (lower) if the latter are published before holidays. I attribute these findings to the effects of investor inattention to news and mood, respectively.

Keywords: Analysts Recommendations; Behavioral Biases; Behavioral Economics; Behavioral Finance; Board of Directors; Compensation; Compensation Committee; Control; Coronavirus; Corporate Governance; COVID-19; Decision Making; Disposition Effect; Earnings Management; Elections; Emotions; Financial Crises; Financial Market Anomalies; Financial Markets; Forecast-Accuracy; Gender Differences; Heuristics; Interval Forecasting; Investment; Investor Horizon; Investors' Beliefs; IPO Under-Pricing; Life Expectancy; Myopia; Overconfidence; Pensions Industry; Policy Reforms; Polls; Portfolio Risk; Prediction Markets; Regulation; Stock Price Drifts; Time Preferences (search for similar items in EconPapers)
JEL-codes: G3 G30 G4 G41 (search for similar items in EconPapers)
Date: 2020
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