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Market reaction to ER reports
 

Rdonahue7's picture
 
Points)
 on 7/10/12 at 9:51pm
Globe

I recently read an academic research report titled Information Content of Equity Analyst Reports. The study examines over 1000 equity research reports written by 50+ sell-side analysts from 11 different banks covering 46 industries. The biggest takeaway from this was that investors place the greatest reliance on the content of security analyst reports when it is a downgrade, and that the market reaction to price targets is most statistically significant compared to other variables.

Is it generally accepted that investors won’t rely as much on the content of reports when it is an upgrade or a hold?

Is it generally accepted that the market will react to price targets more than other variables contained in ER reports (e.g. % change in analyst earnings forecasts)?

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SirTradesaLot's picture

Probably because takes huge

O
 
Points)
 on 7/10/12 at 11:12pm

Probably because takes huge balls to have a sell or underperform rating on a stock and the only reason ou have a sell on a stock is if you are absolutely disgusted by it. That is the only opinion you can trust, if issued by an investment bank. The pressure to be bullish is tremendous for sell side analysts. Probably less so now than ten years ago, but still pretty high pressure.

Turbo leverage for capital explosion -- BD Capital

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energyanalyst's picture

Rdonahue7: I recently read an

O
(Orangutan, 305
 
Points)
 on 7/10/12 at 11:14pm
Rdonahue7:

I recently read an academic research report titled Information Content of Equity Analyst Reports. The study examines over 1000 equity research reports written by 50+ sell-side analysts from 11 different banks covering 46 industries. The biggest takeaway from this was that investors place the greatest reliance on the content of security analyst reports when it is a downgrade, and that the market reaction to price targets is most statistically significant compared to other variables.

Is it generally accepted that investors won’t rely as much on the content of reports when it is an upgrade or a hold?

Is it generally accepted that the market will react to price targets more than other variables contained in ER reports (e.g. % change in analyst earnings forecasts)?

Can you provide me with the link of that report

Thanks

Rdonahue7's picture

http://papers.ssrn.com/sol3/p

 
Points)
 on 7/11/12 at 8:01am

http://papers.ssrn.com/sol3/papers.cfm?abstract_id...

Rdonahue7's picture

Probably because takes huge

 
Points)
 on 7/11/12 at 10:26am

[quote=SirPoopsaLot]Probably because takes huge balls to have a sell or underperform rating on a stock and the only reason ou have a sell on a stock is if you are absolutely disgusted by it. That is the only opinion you can trust, if issued by an investment bank. The pressure to be bullish is tremendous for sell side analysts. Probably less so now than ten years ago, but still pretty high pressure.

I understand there is pressure for sellside analysts to be bullish, and their upgrade recommendations hold less clout as a result. But there have to be reputable firms or sellside analysts that effect the market when they issue upgrades, right?

Analyst570's picture

SirPoopsaLot: Probably

(Chimp, 1
 
Points)
 on 7/11/12 at 6:46pm
SirPoopsaLot:

Probably because takes huge balls to have a sell or underperform rating on a stock and the only reason ou have a sell on a stock is if you are absolutely disgusted by it. That is the only opinion you can trust, if issued by an investment bank. The pressure to be bullish is tremendous for sell side analysts. Probably less so now than ten years ago, but still pretty high pressure.

Are there any investment banks who have a particularly good reputation for not being overly bullish?

SirTradesaLot's picture

Analyst570: Are there any

O
 
Points)
 on 7/11/12 at 9:10pm
Analyst570:

Are there any investment banks who have a particularly good reputation for not being overly bullish?

No. There are some specific analysts though.

Turbo leverage for capital explosion -- BD Capital

My WSO Blog

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