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Article

Darko Vukovic, Vladislav Ugolnikov and Moinak Maiti

This study aims to examine whether the publication of analyst recommendations has reaction in the Russian stock market. This study also aims to determine the other factors…

Abstract

Purpose

This study aims to examine whether the publication of analyst recommendations has reaction in the Russian stock market. This study also aims to determine the other factors that influence the reaction.

Design/methodology/approach

Event study analysis (ESA) and regression models are used in this study.

Findings

The study finds that Russian stock market significantly reacts to analyst recommendations publications. Then study deeply investigates about the influence of other factors on the Russian market when an analyst's recommendations are published such as changes in recommendation levels, companies' size and general economic situation. The analysis done in the context of three types of recommendations: “buy,” “hold” and “sell.” The study finds that the market reacts not only to separate forecasts and subsequent recommendations, but also to the changes in recommendations' levels as well. Interestingly, the study finds that the impact of crises is not found to be a significant factor in the context of the Russian market.

Research limitations/implications

Analysts used to spend much more resources on conducting a fundamental analysis than ordinary investors do. Therefore, they usually possess valuable privileged information that is supposed to influence stock prices when published. However, the present study argues that the direction, extent and period of a reaction of an analyst's recommendations are highly complicated and depend on what factors are under consideration in a particular research. Very often, the authors who dedicate their papers to develop and study markets choose a couple of (or even one) factors and delve into them. Nevertheless, to the author's best knowledge, few frequently cited and well-conducted research focused on such an emerging market as the Russian one. Thus, it seems reasonable that there is a gap in the literature that needs to be filled while considering other important factors. The study findings have a significant investment policy content.

Originality/value

In several senses, the present study is unique. First, it investigates whether analyst recommendations sufficiently affect the Russian stock market; second, it determines whether the significant factors such as changes in recommendation levels, companies' size and general economic situation have influence on the reaction. Finally, the study discusses about whether there is an impact of crises in the present study findings.

Details

Journal of Economic Studies, vol. 47 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

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Article

Subhash Abhayawansa and James Guthrie

The purpose of this paper is to investigate what and how intellectual capital information (ICI) conveyed through analyst reports varies by the type of stock recommendation

Abstract

Purpose

The purpose of this paper is to investigate what and how intellectual capital information (ICI) conveyed through analyst reports varies by the type of stock recommendation. It draws on the theory of impression management.

Design/methodology/approach

Content analysis is used to investigate ICI in the full text of sell‐side analysts’ initiating coverage reports. It categorises ICI by type and three qualitative characteristics: evidence; time orientation; and news‐tenor. It explores how the extent, types and qualitative characteristics of ICI found in analyst reports vary by the type of stock recommendation accompanying the analyst report.

Findings

Given the conflicting interests facing analysts and relative amenability of ICI, it was found that analysts use ICI to manage perceptions. In particular, analysts attempt to use ICI in their reports to subdue the pessimism associated with an unfavourable recommendation, increase credibility of favourable recommendations and distinguish sell from hold recommendations.

Practical implications

The paper contributes to the literature on impression management by extending its application to the study of sell‐side analysts’ decision processes and it alerts future researchers to the wider role played by ICI beyond its use in generation of forecasts and valuations. The paper's findings have implications for consumers of analyst reports, as the level of negativity/positivity of forecasts and recommendations may be altered as a result of the semantics associated with ICI.

Originality/value

This paper explores analysts’ use of ICI conditional on the type of stock recommendation accompanying the report. Findings are explained using the theory of impression management.

Details

Journal of Intellectual Capital, vol. 13 no. 3
Type: Research Article
ISSN: 1469-1930

Keywords

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Article

Omar Farooq and Latifa Id Ali

– The purpose of this paper is to document performance of analysts’ recommendations in the Middle East and North Africa (MENA) region during the period between 1999 and 2010.

Abstract

Purpose

The purpose of this paper is to document performance of analysts’ recommendations in the Middle East and North Africa (MENA) region during the period between 1999 and 2010.

Design/methodology/approach

This paper uses post-announcement market-adjusted returns as a measure of performance and computes returns for different holding periods. Significant positive (negative) returns following buy (sell) recommendation will indicate value relevance of these recommendations.

Findings

The authors show that analysts’ buy recommendations have significant information in them, while their sell recommendations contain no significant information. Significant positive returns are reported following analysts’ buy recommendations and insignificant returns following their sell recommendations. Furthermore, it is also shown that these results hold true only in markets where institutions are relatively strong (common law countries and countries with stronger property rights) and for firms which have lower agency conflicts (firms that pay dividends and have concentrated ownership). For markets where institutions are relatively weak and for firms which have greater agency conflicts, these results show no value in analysts’ recommendations.

Practical implications

These results imply that investors should not blindly follow analyst recommendations while making their investment decisions in the MENA region.

Originality/value

This paper makes detailed analysis of analyst recommendations in previously unexplored MENA region. Some conditions under which analyst recommendation have no value and some conditions under which they have partial value have also been identified.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 7 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

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Article

Alex Proimos

To show how conflicts of interest and disingenuous investment research at the end of the 1990s stock market bubble occurred in Australia as well as the USA and Western Europe.

Abstract

Purpose

To show how conflicts of interest and disingenuous investment research at the end of the 1990s stock market bubble occurred in Australia as well as the USA and Western Europe.

Design/methodology/approach

Reviews the role of research analysts in major securities firms and conflicts of interest such as analyzing and evaluating a company for investment purposes, while seeking the investment banking business of the same company. Provides a case study of how an investment banking firm dealt with a provider of internet search services in both a research and an investment banking capacity. Investigates and evaluates the regulations and guidelines developed and introduced by the Australian regulatory bodies (Australian Stock Exchange (ASX) and Australian Securities and Investment Commission (ASIC)) and the Australian Government to deal with potential conflicts of interest that could affect the objectivity and independence of analyst research.

Findings

There were examples of conflicts of interest and fraudulent stock recommendations in Australia that rivaled the worst examples in the USA and Western Europe.

Originality/value

A reminder of fraudulent investment research practices during the stock market bubble and the potential for conflicts of interest between research and investment banking functions within the same firm.

Details

Journal of Investment Compliance, vol. 6 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

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Article

Hassanudin Mohd Thas Thaker, Azhar Mohamad, Nazrol Kamil Mustaffa Kamil and Jarita Duasa

This paper aims to investigate the value of information content and informativeness of the analyst report for Sharīʿah-compliant shares in Malaysia.

Abstract

Purpose

This paper aims to investigate the value of information content and informativeness of the analyst report for Sharīʿah-compliant shares in Malaysia.

Design/methodology/approach

The authors use a sample of 657 daily published analyst reports on Sharīʿah-compliant shares from 2010 to 2015, which were downloaded from Bursa Malaysia’s repository system. The method was quantitative in nature and panel regression analysis was used. Diagnostics tests including the variance inflation factor, correlation analysis, heteroskedasticity test, serial auto-correlation and the Hausman test were performed to ensure validity and reliability of data. The significance of the variables indicated whether the analyst reports contained valuable information on Shariah compliancy.

Findings

Results obtained from the FEM-Robust model revealed that the R2 value was equivalent to 0.79 per cent, suggesting that the power of return explained by the information content and informativeness was less for Sharīʿah-compliant shares. The F-statistics were statistically significant for all models, postulating that the data used were reliable and fit for the purpose of analysis. The findings showed that the information content of target price and earnings forecasts significantly influenced the returns of Sharīʿah-compliant shares. In terms of informativeness, return on equity, sales to price ratio and cash flow to price were associated with the returns of the shares.

Practical implications

The outcome from this finding confirmed that the analyst report retained its position as a good source of reference when making investment decisions. However, the disclosure of information in the form of qualitative information together with fundamental information should be enhanced for Sharīʿah-compliant share so that investors would have adequate information when making an investment decision.

Originality/value

This study will supply more insights into the matter of information content and informativeness of the analyst report in Malaysia by focussing on Sharīʿah-compliant shares, which is practically an underexplored research area in Malaysia.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 3
Type: Research Article
ISSN: 1759-0817

Keywords

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Article

Ahmed Bouteska and Boutheina Regaieg

The purpose of this paper is to investigate the effect of forecast earnings’ revision on the evolution of securities prices in the Tunisian stock market.

Abstract

Purpose

The purpose of this paper is to investigate the effect of forecast earnings’ revision on the evolution of securities prices in the Tunisian stock market.

Design/methodology/approach

A portfolio study of investor reaction and stock prices following revisions is first conducted to highlight the existence of abnormal return related to analysts’ earnings revisions. Analysis is then supplemented by a second empirical investigation based on the panel data to quantify the effect of revision on the abnormal profitability of securities.

Findings

The evidence found in this paper validates the fundamental theoretical hypothesis according to which the psychological bias resulting from the effect of the forecast earnings revision is related to the abnormal profitability of the securities. The authors conclude the importance of the revision impact on investors’ behavior on one hand, and the informational content of the analysts’ forecasts and the biases which they lead on the other hand.

Originality/value

Globally, the empirical illustrations largely validate the findings of behavioral models particularly that of Kormendi and Lippe (1987), Cornell and Letsman (1989), Beaver et al. (2008) which states that investors under psychological bias, react to the effect of forecast earnings revision by an abnormal variation in stock prices.

Details

Review of Behavioral Finance, vol. 11 no. 2
Type: Research Article
ISSN: 1940-5979

Keywords

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Article

Hassanudin Mohd Thas Thaker, Azhar Mohamad, Nazrol Kamil Mustaffa Kamil and Jarita Duasa

This study aims to document the influence of information content and the informativeness of analyst reports towards cumulative abnormal return in the Malaysian market.

Abstract

Purpose

This study aims to document the influence of information content and the informativeness of analyst reports towards cumulative abnormal return in the Malaysian market.

Design/methodology/approach

Samples of analyst reports for the period 4th January 2010 until 24th December 2015 were collected from the Bursa Malaysia’s repository system for daily basis information. The study uses market-adjusted method for the calculation of cumulative abnormal return and panel regression to test the research objective. In addition, diagnostic tests, which include the variance inflation factor (VIF), correlation analysis, heteroscedasticity tests, serial auto-correlation and the Hausman test, were also performed to ensure the validity and reliability of the data.

Findings

Result from the unbalanced panel data reveals that not all information contained in the analyst reports is able to detect stock returns movement. Only five variables are shown to have a strong association with the returns, and these are target price, earnings forecast, return on equity, cash flows to price and sales to price ratio. The R-square value has also been shown to be relatively low (0.79 per cent), indicating the low predictive power of information content and the informativeness of the analyst report in explaining stock returns. To support the findings based on the knowledge obtained, a descriptive analysis on whether the analyst reports were able to predict the recommendation accurately was performed. Result from the descriptive analysis shows that only 57 per cent of the recommendations are accurate, evidenced by the differing target price and ending price. This outcome appears to contradict the theory of signalling hypothesis. Hence, it can be concluded that analyst reports have less informational role among investors.

Originality/value

This paper has, thus, provided insight into how information disclosed in the analyst report influence the return of stocks, further extending the limited research on analyst report in the context of the Malaysian markets. The paper has also added to the existing literature by providing several implications to practitioners and researchers alike.

Details

Journal of Financial Reporting and Accounting, vol. 16 no. 4
Type: Research Article
ISSN: 1985-2517

Keywords

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Article

Haritha P.H. and Rashmi Uchil

The purpose of this paper is to determine whether individual investor sentiment and its factors influence investment decision-making behavior in the Indian stock market…

Abstract

Purpose

The purpose of this paper is to determine whether individual investor sentiment and its factors influence investment decision-making behavior in the Indian stock market. The study contributes to the novel conceptual framework that integrates the impact of investor sentiment and outlines the role of its factors (herding, media factor, advocate recommendation and social interaction) during the investment decision-making process.

Design/methodology/approach

In this paper, data were collected using a structured questionnaire survey from Indian individual investors. It uses self-reported sources of information collected via a survey of individual investors and estimated the linkage via path modeling. The collected data were analyzed using partial least square structural equation modeling to examine the relationship between the construct, namely, herding, media, advocate recommendation and social interaction with investor sentiment and investment decision-making.

Findings

The study shows that herding, media factor, advocate recommendation and social interaction significantly and positively influence the investor sentiment. Among all the factors, social interaction has the lowest influence on investor sentiment. The study also reveals that investor sentiment has a positive impact on investment decision-making.

Practical implications

The study provides valuable insights for the individual investors, financial advisors, policymakers and other stakeholders. Knowledge of behavioral finance would enhance the decision-making capabilities of individual investors in the stock market. Thus, the study calls for the need to increase awareness among Indian investors about behavioral finance and its usefulness in investment decision-making. The paper also sheds light upon the influence of investor sentiment and its antecedents on investment decision-making. The study confirms that the investor relies on their sentiment while making investment decisions. Hence, the stakeholders in the stock market should focus on investor sentiment and other psychological aspects of individual investors as well.

Originality/value

There are very few studies that deal with the behavioral aspects of individual investors in an emerging market context. The study mainly focuses on the antecedent of investor sentiment and its influence on investment decision-making in the Indian stock market. To the best of authors’ knowledge, the present study unique nature that examines the impact of the antecedent of investor sentiment which was not explored in the Indian context and investment decision-making of individual investors.

Details

Management Research Review, vol. 43 no. 11
Type: Research Article
ISSN: 2040-8269

Keywords

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Article

Longwen Zhang and Minghai Wei

Corporate investment behavior increases the uncertainty of a company’s operation and performance. The purpose of this paper is to investigate how analyst recommendations

Abstract

Purpose

Corporate investment behavior increases the uncertainty of a company’s operation and performance. The purpose of this paper is to investigate how analyst recommendations respond to corporate uncertainty caused by investment behavior and what motivates analysts to react as they do.

Design/methodology/approach

The authors test two motivation hypotheses: the hypothesis that analysts are currying favor with management to obtain private information and the hypothesis that analysts have conflicts of interest due to connections. Using Chinese analyst-level data from 2007 to 2015, the authors find that overall investment levels, R&D investment and M&A events are significantly positively correlated with analyst recommendations, suggesting that analysts tend to react optimistically to corporate investment behavior.

Findings

Analysts are only optimistic about companies with low information transparency, suggesting that analysts may be trying to curry favor with management to gain access to private information. The authors find that analysts with stronger recommendations have more private information and analysts with more private information publish more accurate earnings forecasts, which supports the hypothesis that analysts curry favor with management through optimistic recommendations to obtain more private information. This is consistent with the logic that the difficulty of earnings forecasting increases under uncertain conditions, increasing the demand for private information. The authors then group the analysts according to their underwriting connections, securities company’s proprietary connections and fund connections, and find that the positive correlation between corporate investment behavior and analyst recommendations exists only in the unconnected groups. This is evidence against the hypothesis that analysts have conflicts of interest due to their connections.

Originality/value

First, the authors link the optimism of analysts with the uncertainty of analysts’ information inputs to partially unpack the black box of analysts’ analyses. Second, the authors test the two hypotheses mentioned. There is a lack of comparative studies on the influence of different motivations on the behavior of analysts.

Details

China Finance Review International, vol. 10 no. 3
Type: Research Article
ISSN: 2044-1398

Keywords

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Article

Harit Satt, Sarah Nechbaoui, M. Kabir Hassan and Selma Izadi

This paper aims to document the impact of Ramadan on the optimism of analysts’ recommendations taking as a sample the countries of the MENA region during the period…

Abstract

Purpose

This paper aims to document the impact of Ramadan on the optimism of analysts’ recommendations taking as a sample the countries of the MENA region during the period between 2004 and 2015. The choice of these countries can be explained by the fact that their population is predominantly of a Muslim faith (The Future of World Religions: Population Growth Projections, 2010-2050, 2015).

Design/methodology/approach

The authors used univariate and multivariate regression models to highlight the existence of the Ramadan effect on the optimism of analysts. They have found that pre-holiday optimism is significantly lower than post-holiday optimism.

Findings

This paper also documented the effect of analysts’ experience and information uncertainty on the analysts’ optimism level that allowed us to infer that low experience enhances optimism, while environment with low information uncertainty tends to decrease the level of optimism.

Originality/value

Previous research on this topic has investigated the effect of months of the year, turns of the month and days-of-the-week on the behavior of stock exchanges. Another strand of the literature also analyzed the effect of holidays on the latter. However, this is the first attempt to investigate this effect on analysts’ recommendations optimism when the holiday period is related to Islam.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 12 no. 5
Type: Research Article
ISSN: 1753-8394

Keywords

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