Abstract

ASTAIZA GOMEZ, José Gabriel  and  PEREZ PACHECO, Camilo Andrés. Equity Analyst Reports and Stock Prices. Apuntes del Cenes [online]. 2022, vol.41, n.73, pp.41-60.  Epub Mar 03, 2023. ISSN 0120-3053.  https://doi.org/10.19053/01203053.v41.n73.2022.12638.

In this paper we carry out cointegration analyses, in order to study whether the relationship between analysts' recommendations and their projected capital gains (or losses), is consistent with the hypothesis that sell recommendations are costlier than buy recommendations. We found that recommendations that plainly urge the investor to take action (buy, sell) are consistent with their estimated losses. We also found that recommendations react mildly to higher projected losses, and strongly to higher projected capital gains, which is consistent with systematic optimism. Additionally, we could establish that higher projected losses are positively related to dispersion in recommendations. In summary, we got evidence consistent with Womack's (1996) hypothesis that the cost of issuing a sell recommendation is higher than the cost of a buy recommendation.

Keywords : sell-side analysts; intrinsic value; trading incentives; informational value; access to information.

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