TY - JOUR
T1 - The confirmation effect of analyst recommendation reiterations
AU - Chen, Jing
AU - Jung, Michael J.
AU - Ronen, Joshua
N1 - Publisher Copyright:
© The Author(s) 2016.
PY - 2017/10
Y1 - 2017/10
N2 - The vast majority of reports written by sell-side equity analysts conclude with a reiteration of the analyst’s existing recommendation on a firm’s stock. Yet there is a disproportionate amount of research that focuses on the market reactions of changes in recommendations and a prevailing sense that reiterations do not matter. In this article, we test the hypothesis that reiterations of recommendations serve to resolve information uncertainty since the original recommendation was published and that they give rise to market reactions in the direction of the original recommendation, which we call a confirmation effect. Using a sample of analyst reports that do not contain any changes in recommendations, earnings forecasts, or price targets, we focus solely on reiterations and show that they are associated with proxies for information content, reductions in information uncertainty, and return reactions consistent with a confirmation effect.
AB - The vast majority of reports written by sell-side equity analysts conclude with a reiteration of the analyst’s existing recommendation on a firm’s stock. Yet there is a disproportionate amount of research that focuses on the market reactions of changes in recommendations and a prevailing sense that reiterations do not matter. In this article, we test the hypothesis that reiterations of recommendations serve to resolve information uncertainty since the original recommendation was published and that they give rise to market reactions in the direction of the original recommendation, which we call a confirmation effect. Using a sample of analyst reports that do not contain any changes in recommendations, earnings forecasts, or price targets, we focus solely on reiterations and show that they are associated with proxies for information content, reductions in information uncertainty, and return reactions consistent with a confirmation effect.
KW - Analyst recommendations
KW - Analysts
KW - Confirmation effect
KW - Reiterations
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U2 - 10.1177/0148558X16662577
DO - 10.1177/0148558X16662577
M3 - Article
AN - SCOPUS:85044072848
SN - 0148-558X
VL - 32
SP - 576
EP - 592
JO - Journal of Accounting, Auditing and Finance
JF - Journal of Accounting, Auditing and Finance
IS - 4
ER -