Publication Type
Journal Article
Version
acceptedVersion
Publication Date
7-2020
Abstract
We examine whether analysts use information in well-known stock return anomalies when making recommendations. We find results contrary to the common view that analysts are sophisticated information intermediaries who help improve market efficiency. Specifically, when analysts make more favorable recommendations to stocks classified as overvalued, these stocks tend to have particularly large negative abnormal returns ex post. Moreover, analysts whose recommendations are more aligned with anomaly signals are more skilled and elicit greater recommendation announcement returns. Our results suggest that analysts' biased recommendations could be a source of market frictions that impede the efficient correction of mispricing.
Keywords
Analysts, Analyst recommendation, Mispricing, Market efficiency
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Journal of Financial Economics
Volume
137
Issue
1
First Page
204
Last Page
230
ISSN
0304-405X
Identifier
10.1016/j.jfineco.2020.01.002
Publisher
Elsevier
Citation
GUO, Li; LI, Frank Weikai; and WEI, K.C. John.
Security analysts and capital market anomalies. (2020). Journal of Financial Economics. 137, (1), 204-230.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5937
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jfineco.2020.01.002