Analyst recommendations and Regulation Fair Disclosure : the impact on announcement day effects
Cliett, Ryan Jackson
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The goals of this paper are three fold. First, we present a simple analyst recommendation theory and point out the comparative advantages analysts have over the investing public. Next, we evaluate the information content of analyst recommendations following Wommack (1996) by examining the announcement day effects associated with analyst recommendations. Lastly, we test the impact of Regulation Fair Disclosure on the announcement day effects of analyst recommendations by running a difference in means test on the cumulative abnormal returns generated before the law was implemented vs. after the law was implemented. We find positive announcement effects associated with analyst upgrades and negative effects associated with downgrades - consistent with previous results. We find no evidence consistent with the hypothesis that Regulation Fair Disclosure has decreased the amount of information contained in analyst recommendations.