Holiday effect on stock price reactions to analyst recommendation revisions

Andrey Kudryavtsev

Journal of Asset Management, 2018, vol. 19, issue 7, No 6, 507-521

Abstract: Abstract The study explores the holiday effect on stock price reactions to analyst recommendation revisions and on post-recommendation price drifts. Based on the Mood Maintenance Hypothesis and on the literature documenting lower stock trading activity before holidays, I hypothesize that if a recommendation revision is issued before a holiday, then investors striving to maintain their positive pre-holiday mood, may be less willing to make influential trading decisions, and therefore, may underreact to the recommendation revision, leading to stronger post-recommendation price drift. Analyzing a large sample of analyst recommendation revisions, I document that, compared to “regular” recommendation revisions, pre-holiday recommendation revisions are followed by: (i) significantly weaker event-day stock price reactions, and (ii) significantly more pronounced post-event price drifts, whose magnitude increases over longer post-event periods (up to 6 months). Both effects are more pronounced for small and more volatile stocks and remain robust after accounting for additional company- (size, market model beta, historical volatility) and event-specific (number of recommendation categories changed in the revision, analyst experience) factors.

Keywords: Analyst Recommendation Revisions; Behavioral Finance; Holiday Effect; Mood Maintenance Hypothesis; Stock Price Drifts; G11; G14; G19 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1057/s41260-018-0095-6

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