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Analysts' stock recommendations are not only independent, they're useful

Only 28 percent of analyst revisions actually dovetailed with corporate news

November 10, 2015
Rice University
Contrary to common complaints, analysts' stock recommendations are not only independent, they're useful, according to a new study by financial accounting experts.

Using intraday data that separated stock market reactions to company news releases issued between 2003 and 2010 from reactions to analysts' revisions to recommendations, the researchers found that analysts do not rehash the company line. Rather, they help investors with stock valuation by issuing confirming revisions and also reverse prevailing market beliefs by issuing contrary revisions. Only 28 percent of revisions actually dovetailed with the corporate news they followed, the study found. These revisions, moreover, actually offered more information than did the corporate releases.

The study was published in the Journal of Accounting Research.

"Overall our findings suggest that analysts play important information roles in the capital markets and are inconsistent with the notion that analyst recommendations primarily piggyback on recent corporate news," said study co-author K. Ramesh, the Herbert S. Autrey Professor of Accounting at Rice University's Jones Graduate School of Business. "In fact, analysts not only provide new information beyond corporate news, but also help shape the market's assessment of corporate disclosures."

The study is the first to investigate short-window intraday market reactions to revisions issued after hours, which account for 70 percent of all recommendation revisions in the study's sample period. Analysts' incentives to issue revisions after hours appear to reflect demands from large institutional clients, who dominate after-hours trading, the study found. More importantly, the results show that the after-hours revisions are associated with significantly greater price reactions and different price-reaction patterns than revisions issued during regular trading hours.

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Materials provided by Rice University. Note: Content may be edited for style and length.

Journal Reference:

  1. Edward Xuejun Li, K. Ramesh, Min Shen, Joanna Shuang Wu. Do Analyst Stock Recommendations Piggyback on Recent Corporate News? An Analysis of Regular-Hour and After-Hours Revisions. Journal of Accounting Research, 2015; 53 (4): 821 DOI: 10.1111/1475-679X.12083

Cite This Page:

Rice University. "Analysts' stock recommendations are not only independent, they're useful." ScienceDaily. ScienceDaily, 10 November 2015. <>.
Rice University. (2015, November 10). Analysts' stock recommendations are not only independent, they're useful. ScienceDaily. Retrieved July 23, 2024 from
Rice University. "Analysts' stock recommendations are not only independent, they're useful." ScienceDaily. (accessed July 23, 2024).

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