Open AccessSell side recommendations during booms and busts
Author(s) -
Christian W. Kretzmann,
Christoph M. Maaz,
Oliver Pucker
Publication year - 2015
Publication title -
risk governance and control: financial markets and institutions
Language(s) - English
Resource type - Journals
eISSN - 2077-4303
pISSN - 2077-429X
DOI - 10.22495/rgcv5i4art5
Subject(s) - recession , boom , stock (firearms) , monetary economics , economics , stock market , value (mathematics) , business , investment (military) , financial economics , macroeconomics , geography , politics , computer science , law , political science , machine learning , environmental engineering , engineering , context (archaeology) , archaeology
Our study documents that the information content and the information processing of stock recommendations differ fundamentally between expansions and recessions. The initial market reaction to all recommendations is stronger in recessions, but “Buy” recommendations do not have long-term investment value. We find that in recessions sell side analysts are too optimistic about the stocks they recommend to buy, while investors initially overreact to these recommended stocks. In expansions, no such contradicting pattern exists. We also document that analysts favor “glamour” over “value” stocks irrespective of the state of the economy.