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Investor attention, analyst recommendation revisions, and stock prices

Version 2 2024-06-03, 14:54
Version 1 2016-07-20, 12:53
journal contribution
posted on 2024-06-03, 14:54 authored by V Welagedara, Saikat Sovan DebSaikat Sovan Deb, Harminder SinghHarminder Singh
We provide evidence that investors underreact after analysts' recommendation upgrades; however, price reactions are faster after downgrades. We measure individual investors' attention using Google's search volume index. Our findings indicate that, after upgrades, stocks that enjoy greater individual investors' attention underreact significantly more compared to stocks that receive high level of attention from institutional investors. On the other hand, after recommendation downgrades, stocks with higher levels of prior attention from individual investors overreact and show a significantly greater price reversal compared to stocks that received high level of attention from institutional investors. Our results suggest that attentive individual investors may not be rational; hence investor attention and investor sophistication are important for price discovery in the market.

History

Journal

Pacific basin finance journal

Volume

45

Pagination

211-223

Location

Amsterdam, The Netherlands

ISSN

0927-538X

Language

eng

Publication classification

C Journal article, C1 Refereed article in a scholarly journal

Copyright notice

2016, Elsevier B.V.

Publisher

Elsevier