From tStudy finds analyst tips don’t move pricesBy Francesco Guerrera and Anuj Gangahar in New York
Published: May 17 2009 23:33 |
Analysts’ “buy” and “sell” tips have almost no effect on share prices, according to research that confounds long-held beliefs over the influence of stock-pickers and calls into question investors’ and banks’ need to pay for their service
The study will fuel the debate over the role of research at a time when the the crisis has forced cash-strapped financial groups to slash budgets and lay off thousands of analysts.
academic studies found that when an analyst changes views on a company, its shares move by up to 4 per cent in the direction of the new recommendation.
But after looking at more than 44,000 changes in recommendations between 1997 and 2003, the authors of the study – Oya Altinkiliç of the University of Pittsburgh and Robert Hansen of Tulane University – concluded the effect was minimal, about 0.03 per cent either way.
Unlike other studies, which looked at longer timeframes, the two academics focused on share prices 20 minutes before and after the issuance of a recommendation to filter out the effects of events such as company news and market movements.
“Our results suggest that analysts aren’t the market movers and shakers the world has come to think of them as being – not by a long shot,” said Prof Hansen. “Analysts’ recommendations don’t add much value and investors know it.”
The two academics said the large movements in share prices detected by previous studies resulted from the fact that recommendations were “piggy-backing” on other news.
Almost 80 per cent of analysts’ changes in recommendations, for example, came AFTER corporate events, such as the release of earnings, which led investors to buy or sell shares of their own accord.
“Analysts’ revisions are typically information-free,” the study concluded. Some research professionals defended analysts’ role, saying they were not just stock-pickers and helped their employers’ bottom line by encouraging investors to trade with their banks.
But hope springs eternal (or the editors of the FT don't read their own articles) The following article is linked to the article above.
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