Working Paper: NBER ID: w19778
Authors: Roger K. Loh; Ren M. Stulz
Abstract: Because uncertainty is high in bad times, investors find it harder to assess firm prospects and, hence, should value analyst output more. However, higher uncertainty makes analysts’ tasks harder so it is unclear if analyst output is more valuable in bad times. We find that, in bad times, analyst revisions have a larger stock-price impact, earnings forecast errors per unit of uncertainty fall, reports are more frequent and longer, and the impact of analyst output increases more for harder-to-value firms. These results are consistent with analysts working harder and investors relying more on analysts in bad times.\n
Keywords: sell-side research; analyst output; economic downturn; stock price impact
JEL Codes: F14; F20; F24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic conditions (E66) | stock price impact of analyst recommendations and earnings forecast revisions (G17) |
| bad times (E32) | stock price impact of analyst recommendations (G24) |
| bad times (E32) | stock price impact of earnings forecast revisions (G17) |
| bad times (E32) | frequency of earnings forecast revisions (G17) |
| bad times (E32) | length of analyst reports (G24) |
| harder-to-value firms (G32) | impact of analyst output (D79) |
| bad times (E32) | forecast precision (C53) |