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The First Analyst Coverage of Neglected Stocks
Author(s) -
Demiroglu Cem,
Ryngaert Michael
Publication year - 2010
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2010.01084.x
Subject(s) - market liquidity , business , investment banking , monetary economics , investment (military) , economics , financial economics , finance , politics , political science , law
We examine the first analyst coverage of 549 “neglected” stocks that publicly traded at least one year without research coverage. The stocks experience a +4.86% abnormal return at initiation announcement. Positive returns are driven by positive coverage and not the mere introduction of coverage. Initiations from investment banks elicit lower announcement returns if the bank had a prior business relationship with the covered firm. Research firms paid by the covered company to provide coverage elicit announcement returns that are not significantly different from other analysts. Announcement returns are also influenced by liquidity increases and factors consistent with downward‐sloping demand curves.