MARKET REACTION AND PROPERTIES OF EQUITY ANALYSTS REPORTS

Elisa Cavezzali, John Cass and Ugo Rigoni
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Elisa Cavezzali: University of Venice – Department of Business Economics and Management, Italy
John Cass: Business School – City of London, Great Britain

Revista Economica, 2008, vol. 40, issue 3, 31-62

Abstract: The paper collects and classifies the properties of more than 4600 analysts reports on Italian listed stocks in order to assess their impact on market reactions. The paper innovates the most common approach in the literature which resort mainly on information available on commercial database, such as the final recommendation and the earning forecasts. The findings show the market overlooks most of the properties it has been possible to collect and treat statistically. A part from that, the market looks at different reports properties depending on which are their final recommendation. When the reports make positive recommendation the market is not influenced at all by their content, while it is important their time issuing. The market reaction is stronger if the reports are issued when the frequency of the reports is lower. On the other hand, the reports with neutral and negative recommendations share the same features. The market reaction is stronger when the evaluation methods used to get the fair value estimation are elicited. This result indirectly confirms other previous studies. It could be explained through the disposition effect, that is the which tendency of investors to keep the stocks where they are suffering losses. The negative advice could reach investors both who are gaining and who are losing.While the former ones will be willing to sell, the latter ones, before selling the losing stocks, will require well documented reports with convincing arguments supporting the general advice.

Keywords: Security analysts; Reports properties; Stock evaluation; Market reaction (search for similar items in EconPapers)
Date: 2008
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