Analysts’ Unfavorable Recommendation Initiations

Joshua Livnat, Kate Suslava, Yakun Wang, Li Zhang and Chen Zhao

Chapter 6 in Behavioral Finance:Beyond the Basics, 2024, pp 131-158 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Surprisingly, analysts initiate unfavorable coverage nearly as often as they initiate positive coverage. We show that analysts do this to build their reputation. First, they are more likely to initiate unfavorable recommendations when their reports include more discussions about firm uncertainty. This suggests that analysts are dissuaded from issuing favorable forecasts when they perceive the firm’s future prospects to be unclear. Second, we find that analysts gain credibility from investors after they begin coverage with unfavorable recommendations. Specifically, the market reactions to subsequent upgrade recommendations are significantly stronger when analysts initiate unfavorable coverage than benchmark returns.

Keywords: Market Efficiency; Cross-Sectional Anomalies; Arbitrage Trading Activity; Exploiting Mispricing Dividends; Stock Repurchase; Annuity; Financial Decisions; Lump Sum. Retirement Savings; Behavioral Factors; Disruptive Innovation; Market Transition; Investments; Analyst Recommendations; Coverage Initiation; Stock Market Reaction; Artificial Intelligence; Professional Investors (search for similar items in EconPapers)
JEL-codes: G4 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789811290633_0006 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789811290633_0006 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789811290633_0006

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().