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The reaction of investors to analyst recommendations of stocks listed on the WIG20 index

Managerial Economics

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Title The reaction of investors to analyst recommendations of stocks listed on the WIG20 index
 
Creator Suliga, Milena
 
Subject —
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Description Analyst recommendations are one of the types of information whose appearance on the market can have an influence on security prices. In this paper, I study the impact of analyst recommendations on stocks listed on the WIG20 Index, using event-study methodology and linearregression models. The dataset contains 576 absolute recommendations published from the1st January 2012 to the 1st of September 2015 by various analyst houses. The prefatory study researches price reaction to positive, neutral, and negative recommendations separately. Subsequently, to check if investor reaction depends on a change in the level of recommendation, corresponding research is repeated for events clustered in nine groups defined in terms of possible level changes. Linear regression models with categorical variables are used in searchof additional factors affecting investor reactions. Changes in the level of recommendation, size of the company, and reputation of brokerage house represent explanatory variables. Preliminary results point out that the direction of investor reaction is generally consistent with the information contained in the recommendation, and that the reaction of the market seems to be stronger in the case of positive events than in the case of negative ones. The analysis of recommendation changes reflects more-detailed dependents. In particular, the interpretation of a neutral recommendation depends strongly on the level of the previous recommendation. If it represents growth from SELL or REDUCE, the reaction is positive, while in the case of drop from ACCUMULATE or BUY, it leads to negative abnormal returns. This relationship is additionally confirmed by results from the linear regression models. The models show the size of the firm as a significant factor that has an influence on the reaction to a recommendation: the smaller the firm, the stronger the reaction.
 
Publisher AGH University of Science and Technology Press.
 
Contributor —
 
Date 2016-07-23
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier https://journals.agh.edu.pl/manage/article/view/2111
10.7494/manage.2016.17.1.123
 
Source Managerial Economics; Vol 17, No 1 (2016); 123
1898-1143
 
Language eng
 
Relation https://journals.agh.edu.pl/manage/article/view/2111/1548
 
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