Publication Type

Journal Article

Version

acceptedVersion

Publication Date

7-2016

Abstract

Amendments to NASD Rule 2711 and NYSE Rule 472, enacted in May 2002, mandate that sell-side analysts disclose the distribution of their security recommendations by buy, hold and sell category. This regulation enhances the transparency of analysts' information and mitigates the long-recognized optimistic bias in their recommendations. However, we find that analysts are more likely to issue sell recommendations or downgrade revisions on weekends when investors have limited attention after these rule changes. This pattern is more pronounced for prestigious analysts, who are more likely to influence stock prices. Market reaction tests reveal an incomplete immediate response and a greater drift to unfavorable recommendations issued on weekends. Finally, analysts who are more likely to release unfavorable recommendations on weekends exhibit higher future forecast accuracy. Our findings suggest that, while these regulatory changes effectively reduce analysts' optimistic bias, they are also associated with an increased prevalence of a different form of distortion in the capital market.

Keywords

analyst recommendations, limited attention, market inefficiency, weekend, NASD Rule 2711, NYSE Rule 472

Discipline

Databases and Information Systems | Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Information Systems and Management

Publication

Journal of Business Finance and Accounting

Volume

43

Issue

7-8

First Page

950

Last Page

975

ISSN

0306-686X

Identifier

10.1111/jbfa.12211

Publisher

Wiley

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1111/jbfa.12211

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