Su, C., Zhang, H. and Hudson, R. (2020) The time-varying performance of UK analyst recommendation revisions : do market conditions matter? Financial Markets, Institutions and Instruments, 29 (2). pp. 65-89. ISSN 0963-8008
Abstract
This study examines the time-varying performance of investment strategies following analyst recommendation revisions in the UK stock market, with specific emphasis on the impact of changing market conditions. We find a negative relationship between the recommendation performance and market conditions as measured in terms of past market return and market volatility. In particular, the upgrade (downgrade) portfolio generates significantly positive (negative) net abnormal returns in bad market conditions (e.g., the dot-com bubble burst in 2000 and the credit crisis in 2007), but not in other periods of time. Moreover, our non-temporal threshold regression analysis shows that the reported negative relationship disappears when market conditions become better, i.e., when the past market return (market volatility) is higher (lower) than a certain level, indicating the importance of taking non-linearity into account in the long sample period as examined in this study. Our time-series bootstrap simulations further confirm that the superior recommendation performance in bad market conditions is not due to random chance; analysts have certain skills in making valuable up/downward revisions in bad markets.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2020 The Authors. Financial Markets, Institutions & Instruments published by New York University Salomon Center and Wiley Periodicals LLC. This is an open access article under the terms of the Creative Commons Attribution License, (http://creativecommons.org/licenses/by/4.0/) which permits use, distribution and reproduction in any medium, provided the original work is properly cited. |
Keywords: | Analyst recommendation revisions; Market conditions; Non-temporal threshold regression model; Bootstrap simulations |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Management School (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 02 Apr 2020 08:11 |
Last Modified: | 29 Apr 2020 11:52 |
Status: | Published |
Publisher: | Wiley |
Refereed: | Yes |
Identification Number: | 10.1111/fmii.12126 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:158999 |