Analyst says a lot, but should you listen? Evidence from Russia

Abstract

PurposeThis study aims to examine whether the publication of analyst recommendations has reaction in the Russian stock market. This study also aims to determine the other factors that influence the reaction.Design/methodology/approachEvent study analysis (ESA) and regression models are used in this study.FindingsThe study finds that Russian stock market significantly reacts to analyst recommendations publications. Then study deeply investigates about the influence of other factors on the Russian market when an analyst's recommendations are published such as changes in recommendation levels, companies' size and general economic situation. The analysis done in the context of three types of recommendations: “buy,” “hold” and “sell.” The study finds that the market reacts not only to separate forecasts and subsequent recommendations, but also to the changes in recommendations' levels as well. Interestingly, the study finds that the impact of crises is not found to be a significant factor in the context of the Russian market.Research limitations/implicationsAnalysts used to spend much more resources on conducting a fundamental analysis than ordinary investors do. Therefore, they usually possess valuable privileged information that is supposed to influence stock prices when published. However, the present study argues that the direction, extent and period of a reaction of an analyst's recommendations are highly complicated and depend on what factors are under consideration in a particular research. Very often, the authors who dedicate their papers to develop and study markets choose a couple of (or even one) factors and delve into them. Nevertheless, to the author's best knowledge, few frequently cited and well-conducted research focused on such an emerging market as the Russian one. Thus, it seems reasonable that there is a gap in the literature that needs to be filled while considering other important factors. The study findings have a significant investment policy content.Originality/valueIn several senses, the present study is unique. First, it investigates whether analyst recommendations sufficiently affect the Russian stock market; second, it determines whether the significant factors such as changes in recommendation levels, companies' size and general economic situation have influence on the reaction. Finally, the study discusses about whether there is an impact of crises in the present study findings.

Sell‐side analysts' recommendations a value or noise

“…They investigate the strength, direction and duration of the investors' response, as well. Even more, some authors (like Bae, Stulzb, & Tan, 2008) analyse whether local analysts (or resident analyst) in a country make more precise earnings forecasts for firms in that country than non‐resident analysts (Vukovic, Ugolnikov, & Maiti, 2020b). According to their results, after observation of 32 countries, they find that that the earnings forecasts of local analysts are more precise.…”

“…Authors of studies of investment value of analyst recommendations and the market reaction to these publications (Asquith et al, 2005; Bae et al, 2008; Keasler & McNeil, 2010; Li, Ramesh, Shen, & Wu, 2015; Murg, Pachler, & Zeitlberger, 2014; Vukovic, Ugolnikov, & Maiti, 2020b; Womack, 1996) acknowledged the essence of the event study analysis that allows tracking the reactions of the stock market to certain events and news arising from the activities of market participants. As it was mentioned earlier, the core characteristic of the investors' response is abnormal returns and cumulative abnormal returns that occur around the event.…”

“…The main objective of the paper is to investigate the analysts' recommendations' value related to the U.S. and the European stock markets, and to determine on which market the analysts have more predictive power. The term 'predictive power' mostly relate to whether a stock price moves in line with a particular recommendation what leads to abnormal returns of the security (Berkman & Yang, 2019; Vukovic, Ugolnikov, & Maiti, 2020b). If analysts' recommendations' are negative, stock price will have a negative trend and if analysts' recommendations' are positive, the stock price will have strong support (Vukovic, Ugolnikov, & Maiti, 2020b).…”

“…The term 'predictive power' mostly relate to whether a stock price moves in line with a particular recommendation what leads to abnormal returns of the security (Berkman & Yang, 2019; Vukovic, Ugolnikov, & Maiti, 2020b). If analysts' recommendations' are negative, stock price will have a negative trend and if analysts' recommendations' are positive, the stock price will have strong support (Vukovic, Ugolnikov, & Maiti, 2020b). The both cases are “predictive power.” Thus, the greater these abnormal returns caused by the recommendation, the greater the recommendation's value and the analysts' predictive power.…”

Companies profitability under economic instability: evidence from the manufacturing industry in Russia

“…Regularities related to the profitability of enterprises are identified in various industries in both developed and developing countries, and extant research takes a special interest in the dynamics of profitability indicators in unstable economic conditions. As in a number of studies (Ahn 2008;Tang 2015;Jeanneret 2015;Griffin 2015;Ahmad et al 2016;Spitsin et al 2018), we use the term "economic instability" to refer to the volatility of such external factors as the ruble exchange rate and interest rates (Vukovic et al 2019;Vukovic et al 2020). We scrutinize the extent to which the outcome varies depending on the form of ownership, be that domestic enterprises, foreign enterprises or enterprises in the joint form of ownership.…”