Informational content of financial experts' recommendations and their impact on capital markets [Elektronische Ressource] / vorgelegt von Alexander Gabriel Kerl

Alexander Kerl

Informations

• Publié par: eberhard_karls_universitat_tubingen
• Publié le: 01 janvier 2008
• Nombre de lectures: 13
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Informational Content of
Financial Experts’ Recommendations
and their
Impact on Capital Markets
Inaugural-Dissertation
zur Erlangung des Doktorgrades
der Wirtschaftswissenschaftlichen Fakultät
der Eberhard-Karls-Universität zu Tübingen
vorgelegt von
Alexander Gabriel Kerl
aus Berlin
2008Dekan: Professor Dr. Joachim Grammig
Erstkorrektor: Dr. Werner Neus
Zweitkorrektor: Professor Dr. Joachim Grammig
Tag der mündlichen Prüfung: 14. August 2008Preface
Up to the year 2000, the financial press frequently quoted the opinion of financial ex-
perts on stocks since it seemed that they always correctly predicted the future development
of stocks. In those times, financial analysts increased their earnings forecasts every year
and stock recommendations were mainly positive. Since market indices rose from year
to year, analysts’ forecasts proved to be valuable for investors. However, the role of fi-
nancial experts came under scrutiny when markets crashed in 2000 but recommendations
still remained positive. People began to realize that financial experts might have been too
optimistic and their recommendations seemed to be biased due to conflicts of interests.
Among others, I also made my first (negative) experiences with financial markets in that
time. This aroused my interest in the question of how "valuable" stock recommendations
are apart from the general hype during that time; this later led me to choose this field of
research for my thesis.
However, this work would not have been possible without the effort of various persons that
accompanied me along the way. First of all, I would like to thank Professor Dr. Werner
Neus, my thesis supervisor, for his continuous support and valuable advice concerning my
research projects. Additionally, I thank Professor Dr. Joachim Grammig for acting as a
second referee for my thesis. Special thanks, however, go to my colleague Dr. Andreas
Walter for his guidance and encouragement throughout the last three years. I owe him
much of the outstanding opportunities and experiences; our fruitful discussions on this field
of research led to interesting publications. Finally, it was always enjoyable to spend time
with him. More generally, I would like to thank all seminar participants (at Tübingen and
various conferences) who gave me valuable advice that helped me shape my hypotheses
and improve the methodologies used.
Various other persons should not go unmentioned. I thank Anna Rohlfing for reading this
work and correcting my English. To Martin Weiss, I am indebted for his continuous com-
Aputing and LT X support. Since the second part of this work is based on a rather largeE
database that had to be compiled by hand, I thank the team of research assistants. Addi-
tionally, I would like to thank the whole team of the banking chair (Joachim Brixner, Björn
Dymke, Jens Grunert, Ralf Österle and Philipp Sturm) for the comfortable atmosphere
that made it really enjoyable to spend the last years together. Furthermore, special thanks
go to the Graduiertenkolleg "Unternehmensentwicklung, Marktprozesse und Regulierung
in dynamischen Entscheidungsmodellen" at the University of Tübingen for granting me a
scholarship that made it possible to work on this project and attend various conferences.
Finally, even though it is impossible to describe the importance of their support and
encouragement, I thank my family and Cornelia. Without their love and patience, this
work would surely not have been completed. I dedicate this book to them.
Alexander G. KerlOverview
List of Figures I
List of Tables II
1 Introduction 1
2 Market Responses to Buy Recommendations Issued byPersonal Finance
Magazines: Effects of Information, Price-Pressure, and Company Char-
acteristics 5
3 Long-run Performance Evaluation of Journalists’ Stock Recommenda-
tions 25
4 The Usual Suspects: The Effects of Attention on Journalists’ Stock Rec-
ommendations 50
5 Never Judge a Book by Its Cover - What Security Analysts Have to Say
Beyond Recommendations 56
6 Target Price Accuracy 90
7 Conclusion 117
References 119Contents
List of Figures I
List of Tables II
1 Introduction 1
2 Market Responses to Buy Recommendations Issued byPersonal Finance
Magazines: Effects of Information, Price-Pressure, and Company Char-
acteristics 5
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Related Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Data and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3.1 Description of Database . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3.2 Descriptive Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3.3 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.4 Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4.1 Market Reaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4.2 Price-pressure versus Information Value . . . . . . . . . . . . . . . . 18
2.5 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3 Long-run Performance Evaluation of Journalists’ Stock Recommenda-
tions 25
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.2 Related Literature and Hypotheses . . . . . . . . . . . . . . . . . . . . . . 27
3.2.1 Related Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2.2 Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3 Data and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.3.1 Description of Database . . . . . . . . . . . . . . . . . . . . . . . . 31
3.3.2 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.4 Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.4.1 Investment Value of Stock Recommendations . . . . . . . . . . . . . 35
3.4.2 Determinants of Characteristic-adjusted Returns . . . . . . . . . . . 39
3.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484 The Usual Suspects: The Effects of Attention on Journalists’ Stock Rec-
ommendations 50
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.2 Data and Definition of Variables . . . . . . . . . . . . . . . . . . . . . . . . 51
4.3 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5 Never Judge a Book by Its Cover - What Security Analysts Have to Say
Beyond Recommendations 56
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.2 Related Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.3 Sample Selection, Summary Statistics, and Model Variables . . . . . . . . . 62
5.3.1 Sample Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
5.3.2 Summary Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5.3.3 Model Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
5.4 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
5.4.1 Determinants of the Market Reaction . . . . . . . . . . . . . . . . . 74
5.4.2 The Effect of Conflicts of Interest . . . . . . . . . . . . . . . . . . . 80
5.4.3 The of Bank Reputation . . . . . . . . . . . . . . . . . . . . 83
5.4.4 Robustness Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
5.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
6 Target Price Accuracy 90
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
6.2 Database . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
6.2.1 Database and Sample Selection . . . . . . . . . . . . . . . . . . . . 93
6.2.2 Summary Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
6.3 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
6.3.1 Accuracy Measure . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
6.3.2 Determinants for Target Price Accuracy . . . . . . . . . . . . . . . 101
6.4 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
6.4.1 Overall Target Price Accuracy . . . . . . . . . . . . . . . . . . . . . 104
6.4.2 The Effect of Bank Reputation and Conflicts of Interest . . . . . . . 109
6.5 Discussion and Concluding Remarks . . . . . . . . . . . . . . . . . . . . . 113
7 Conclusion 117
References 119List of Figures
1 Cumulative abnormal returns for small stocks versus big stocks . . . . . . . 20
2 Cume for value stocks versus glamour stocks . . . . 21
3 Graphical illustration of target price under- and overachievement . . . . . . 97
IList of Tables
1 Descriptive statistics for buy recommendations, from 1995 to 2003 . . . . . 11
2 Abnormal returns, cumulative abnormal returns and excess volumes for buy
recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3 Cumulative abnormal returns for buy recommen