Investor attention, analyst recommendation revisions, and stock prices

Venura Welagedara, Saikat Sovan Deb and Harminder Singh

Pacific-Basin Finance Journal, 2017, vol. 45, issue C, 211-223

Abstract: We provide evidence that investors underreact after analysts' recommendation upgrades; however, price reactions are faster after downgrades. We measure individual investors' attention using Google's search volume index. Our findings indicate that, after upgrades, stocks that enjoy greater individual investors' attention underreact significantly more compared to stocks that receive high level of attention from institutional investors. On the other hand, after recommendation downgrades, stocks with higher levels of prior attention from individual investors overreact and show a significantly greater price reversal compared to stocks that received high level of attention from institutional investors. Our results suggest that attentive individual investors may not be rational; hence investor attention and investor sophistication are important for price discovery in the market.

Keywords: Analyst recommendation; Price reaction; Investor attention (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:45:y:2017:i:c:p:211-223

DOI: 10.1016/j.pacfin.2016.05.010

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