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Is Sell‐Side Research More Valuable in Bad Times?
Author(s) -
LOH ROGER K.,
STULZ RENÉ M.
Publication year - 2018
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12611
Subject(s) - earnings , value (mathematics) , stock (firearms) , stock price , business , economics , financial economics , actuarial science , accounting , computer science , engineering , mechanical engineering , paleontology , machine learning , series (stratigraphy) , biology
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 whether 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, and analyst reports are more frequent and longer. The increased impact of analysts is also more pronounced for harder‐to‐value firms. These results are consistent with analysts working harder and investors relying more on analysts in bad times.