Berzon N.I.National Research University – Higher School of Economics, Moscow, Russian Federation nberzon@hse.ru
Importance The paper investigates the reaction of stock prices to the revisions of analysts’ recommendations. The evaluation of information significance of analysts' recommendations for stock price behavior is of special importance for investors as their concern is whether the recommendations provide higher yields than the market return. Objectives The aim is to assess the information importance of analysts’ recommendations for the stock price behavior in Russia. In this context, the revision of the recommendation has information importance if it is accompanied by a significant (statistically different from zero) change in the yield on securities. Methods The methodology rests on the event study method. It enables to test the hypothesis about whether the abnormal return is other than zero on the day of an important event, as well as before and after it. Results The study confirms the hypothesis that the growth of quotations as a result of recommendation upgrade exceeds a drop in prices as a result of recommendation downgrade. Moreover, the impact of adverse event was not only smaller in magnitude, but also more prolonged than the influence of positive event. In addition, the results show that quotes of Russian stocks increase as a result of recommendation upgrade, but over time they begin declining and in about 45 days from the date of the revision go back to the previous level. On the contrary, in case of recommendation downgrade, we detected a long 'drift' of stock prices in the respective direction. Conclusions and Relevance The results show that information about the revision of the recommendations is not reflected in prices immediately, therefore, the Russian securities market is inefficient and there is a possibility to develop various trading strategies based on the recommendations of analysts.
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