The Impact of Publication of Analysts’ Recommendations on Returns and Trading Volume

Abstract

Publication of security analysts’ recommendations in the column “Inside Wall Street,” which is published in Business Week, induces abnormal returns on the publication day and the following day. The abnormal returns are robust to the use of alternative samples and methodologies. The publication increases trading volumes for the securities that are recom- mended to be purchased, but not for securities that are recommended to be sold. The abnormal returns and trading volumes support the view that stock prices do not adjust instantaneously when new info~nation arrives, and that the time pattern of price adjustment depends on the time pattern of the accessibility of the information. The authors find no statistically significant difference between the average abnormal returns that are induced by recommendations that appear at the beginnings of “Inside Wall Street” columns (and are covered more extensively than others) and the average abnormal returns induced by other r~ommendations. The Financial Review, August 1994, 29(3): 395-417. (Reprinted with permission of The Financial Review.)