Information Content of Equity Analyst Reports

By P. Asquith, M. Mikhail, Andrea S. Au. 2005

898 citations recorded by the source corpus.

This paper investigates the market reaction to the information released in security analyst reports. It shows that the market reacts significantly and positively to changes in recommendation levels, earnings forecasts, and price targets. While changes in price targets and earnings forecasts both provide information to the market, revisions in price targets have a larger and more significant impact than comparable revisions in earnings forecasts. The text of the report is also a significant source of information as it provides the justifications supporting an analyst's summary opinion. When all of this information is considered simultaneously, some of it, notably the earnings forecasts, is subsumed. The results further show that analysts correctly predict price targets slightly over 50% of the time. Finally, the valuation methodology used does not seem to be correlated with either the market's reaction or the analyst's accuracy.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/de513b0338e1fb2a55cc5bc0cbe19f537e372293

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Citations in the corpus

Judgmental forecasting: A review of progress over the last 25 years (2006, positive): “As Asquith, Mikhail, and Au (2005) showed, there is substantial information content in the management and analysts’ forecasts when they are released.”
Do accurate earnings forecasts facilitate superior investment recommendations (2006, neutral): “For example, Bradshaw (2004) and Asquith et al. (2005) argue that analysts”
Do Security Analysts Exhibit Persistent Differences in Stock Picking Ability (2004, positive): “Consistent with Francis and Soffer (1997) and Asquith et al. (2004), the sign and magnitude of the market reaction depend not only on the current recommendation but also on the prior recommendation.”
Evidence on the Information Content of Text in Analyst Reports (2014, positive): “While Asquith et al. (2005) provide insight into the role of written reports, their study uses a small and non-random sample.”
When Security Analysts Talk, Who Listens? (2007, positive): “Asquith, Mikhail, and Au (2005) empirically demonstrate that investors are more likely to focus on the information contained in an analyst's report, such as its”
Analyst Recommendations, Mutual Fund Herding, and Overreaction in Stock Prices (2014, neutral): “…predictive value of stock recommendation revisions is higher than that of recommendation levels (e.g., Jegadeesh et al. 2004), and that analyst recommendation revisions also have greater investment value than analyst earnings forecast revisions (e.g., Francis and Soffer 1997, Asquith et al. 2005).”
Strength of Analyst Coverage Following IPOs (2006, positive): “(7)For a general discussion of how target prices are established, see Asquith et al. (2005). For a description of how target prices are determined in the context of IPO firms, see Houston et al.”