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Are financial analysts eager postmen of bubble psychology? Evidence in the United Kingdom
Author(s) -
Forbes William P.,
Murphy Áine,
O'Keeffe Cormac,
Su Chen
Publication year - 2020
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1732
Subject(s) - bubble , stock (firearms) , earnings , economics , shareholder , economic bubble , predictive power , explanatory power , monetary economics , financial economics , finance , accounting , business , corporate governance , mechanical engineering , philosophy , epistemology , parallel computing , computer science , engineering
This paper examines the investment value of financial analysts' advice (earnings forecasts and stock recommendations) to shareholders around two recent bubble periods in the United Kingdom: the dot‐com bubble period and the credit bubble period. We find that analysts' advice is valuable at the firm level, as reflected in their recommendations for high‐tech stocks before and after the dot‐com bubble burst. However, at the aggregate level, in neither bubble period do we uncover a stable relation between average stock returns and analysts' advice. The key to the lack of predictive power of analysts' advice does not seem to be their predictable nature, as the responsiveness of returns to such news, predicted or not, varies widely around the bubble periods studied.