Capitalising on European analyst earnings estimates and recommendations during different volatility regime periods

Andrea S Au ()
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Andrea S Au: State Street Global Advisors

Journal of Asset Management, 2007, vol. 8, issue 2, No 2, 74-85

Abstract: Abstract Examining market-adjusted cumulative abnormal returns following European analyst earnings estimate and recommendation announcements, I find that both factors are significant when considered unconditionally and conditional on each other. When examining the strength of these factors during different market regime periods, however, I find that when the market or stock volatility for a given month is unusually high or dispersion between the market and stock volatilities is unusually low, the significance of both the EPS estimate and recommendation factors decreases or is non-existent. In addition, the least favourable quintile of securities — as measured by change in the earnings or recommendation factor — no longer exhibits the least favourable market-adjusted cumulative abnormal return. Since volatility is somewhat persistent, modifying analyst factor models based on recent market environments increases potential portfolio returns.

Keywords: earnings; recommendations; security analysts; market regime (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1057/palgrave.jam.2250062

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