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Stock price reactions to analysts’ recommendations. Do analysts make a valuable contribution to price discovery?

Jónsson, Andri LU and Nilsson, Oskar LU (2021) NEKN02 20211
Department of Economics
Abstract
The aim of this thesis was to investigate if stock recommendations published by financial analysts make a valuable contribution to price discovery on the Swedish stock market. This was achieved by examining the abnormal returns for two time windows, the surrounding days of published recommendations and the next two weeks after publication. The complete data sample consisted of the 30 companies within the OMX STOCKHOLM 30 index, the stock recommendations made on them and their historical stock prices during the period 2006-2021. By applying an event study methodology, it was shown that buy and sell recommendations published by stock analysts do display cumulative abnormal returns over both time windows being investigated. Furthermore, that... (More)
The aim of this thesis was to investigate if stock recommendations published by financial analysts make a valuable contribution to price discovery on the Swedish stock market. This was achieved by examining the abnormal returns for two time windows, the surrounding days of published recommendations and the next two weeks after publication. The complete data sample consisted of the 30 companies within the OMX STOCKHOLM 30 index, the stock recommendations made on them and their historical stock prices during the period 2006-2021. By applying an event study methodology, it was shown that buy and sell recommendations published by stock analysts do display cumulative abnormal returns over both time windows being investigated. Furthermore, that the published recommendations favor the information hypothesis as they proved to have valuable contribution to price discovery. The interaction variables MarketCap and Turnover were implemented to test if the price reaction to recommendation changes differs depending on size and liquidity. The results showed that larger sized firms will have smaller price reactions for downgraded recommendations. Whereas firms with higher liquidity show stronger price reactions for downgraded recommendations. (Less)
Please use this url to cite or link to this publication:
author
Jónsson, Andri LU and Nilsson, Oskar LU
supervisor
organization
course
NEKN02 20211
year
type
H1 - Master's Degree (One Year)
subject
keywords
Stock recommendations, Efficient market hypothesis, Information hypothesis, Price pressure hypothesis, Cumulative abnormal returns
language
English
id
9052143
date added to LUP
2021-10-26 08:16:44
date last changed
2021-10-26 08:16:44
@misc{9052143,
  abstract     = {{The aim of this thesis was to investigate if stock recommendations published by financial analysts make a valuable contribution to price discovery on the Swedish stock market. This was achieved by examining the abnormal returns for two time windows, the surrounding days of published recommendations and the next two weeks after publication. The complete data sample consisted of the 30 companies within the OMX STOCKHOLM 30 index, the stock recommendations made on them and their historical stock prices during the period 2006-2021. By applying an event study methodology, it was shown that buy and sell recommendations published by stock analysts do display cumulative abnormal returns over both time windows being investigated. Furthermore, that the published recommendations favor the information hypothesis as they proved to have valuable contribution to price discovery. The interaction variables MarketCap and Turnover were implemented to test if the price reaction to recommendation changes differs depending on size and liquidity. The results showed that larger sized firms will have smaller price reactions for downgraded recommendations. Whereas firms with higher liquidity show stronger price reactions for downgraded recommendations.}},
  author       = {{Jónsson, Andri and Nilsson, Oskar}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Stock price reactions to analysts’ recommendations. Do analysts make a valuable contribution to price discovery?}},
  year         = {{2021}},
}