Title

Investor inattention and the underreaction to stock recommendations

Publication Type

Journal Article

Publication Date

8-2010

Abstract

Investors’ reaction to stock recommendations is often incomplete so that there is a predictable post-recommendation drift. I investigate investor inattention as a plausible explanation for this drift by using prior turnover as a proxy for attention. I find that low attention stocks react less to stock recommendations than high attention stocks around the three-day event window. Subsequently, the recommendation drift of firms with low attention is more than double in magnitude when compared to firms with high attention. Similar conclusions are reached with alternative proxies for attention. The evidence supports investor inattention as a source of the stock recommendation drift.

Keywords

Underreaction, Investor Attention, Security Analysts, Stock Recommendations

Discipline

Portfolio and Security Analysis

Research Areas

Finance

Publication

Financial Management

Volume

39

Issue

3

First Page

1223

Last Page

1252

ISSN

1755-053X

Identifier

10.1111/j.1755-053X.2010.01110.

Publisher

Wiley