South Asian Journal of Management

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Does an Analyst’s Stock Recommendation cause Anomalous Price Drift?A Study of the Indian Stock Market


Affiliations
1 Research Scholar, Department of Business Studies, Department of Business Administration, Mangalore University, Mangalagangothri, Mangalore-574199, Karnataka, India
2 Academic Co-Ordinator, Department of Commerce & International Business, School of Business Studies, Central University of Kerala, Sabarmathi Block, Tejaswini Hills, Periye Post, Kasaragod-671 320, Kerala, India
     

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Do analysts add value to the investment decisions of the market participants? Or do they contribute to the noise and cause significant price responses? Analysts have played a crucial role in the developed markets in influencing the investment decisions of individuals and corporates. This study discusses the role of analysts in influencing stock prices and the market behavior of Indian firms by empirically analyzing the stock recommendations of analysts using event study methodology. Data of Nifty 50 indexed-firms, (the benchmark index of the National Stock Exchange (NSE) in India) for the period 2012-18 have been used for analysis. It was found that although analysts caused some delayed price response of stocks and anomalous drift in stock prices resembling the market under-reaction for their bullish recommendations, they failed to significantly influence the stock prices of firms on the announcement day. Implications for investors and recommendations for future studies in this area are mentioned.

Keywords

Analysts’ Recommendations, Event Study Methodology, Market Under-Reaction, National Stock Exchange (NSE), Stock Prices.
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  • Does an Analyst’s Stock Recommendation cause Anomalous Price Drift?A Study of the Indian Stock Market

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Authors

V. Harshitha Moulya
Research Scholar, Department of Business Studies, Department of Business Administration, Mangalore University, Mangalagangothri, Mangalore-574199, Karnataka, India
T. Mallikarjunappa
Academic Co-Ordinator, Department of Commerce & International Business, School of Business Studies, Central University of Kerala, Sabarmathi Block, Tejaswini Hills, Periye Post, Kasaragod-671 320, Kerala, India

Abstract


Do analysts add value to the investment decisions of the market participants? Or do they contribute to the noise and cause significant price responses? Analysts have played a crucial role in the developed markets in influencing the investment decisions of individuals and corporates. This study discusses the role of analysts in influencing stock prices and the market behavior of Indian firms by empirically analyzing the stock recommendations of analysts using event study methodology. Data of Nifty 50 indexed-firms, (the benchmark index of the National Stock Exchange (NSE) in India) for the period 2012-18 have been used for analysis. It was found that although analysts caused some delayed price response of stocks and anomalous drift in stock prices resembling the market under-reaction for their bullish recommendations, they failed to significantly influence the stock prices of firms on the announcement day. Implications for investors and recommendations for future studies in this area are mentioned.

Keywords


Analysts’ Recommendations, Event Study Methodology, Market Under-Reaction, National Stock Exchange (NSE), Stock Prices.

References