SIFR Research Report Series, Institute for Financial Research
Jose Vicente Martinez
Information Misweighting and Stock Recommendations
Abstract: I provide evidence that analysts whose earnings forecast
revisions showed signs of greater exaggeration in the past make
recommendation changes that lead to lower abnormal returns than their
peers. Interpreting stock recommendations as a forecast of future abnormal
returns, I show that this evidence is consistent with the hypothesis that
analysts who typically exaggerate or overstate the weight of their private
information when issuing forecasts also do so when making recommendations.
I also show that past earnings forecast provide incremental information
about analysts' recommending behavior beyond that contained in past
Keywords: Information misweighting; stock recommendations; earnings forecasts; financial analysts; (follow links to similar papers)
JEL-Codes: G14; G24; J44; (follow links to similar papers)
48 pages, July 15, 2007
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