Informed trading before analyst downgrades: Evidence from short sellers

Christophe, Stephen E.; Ferri, Michael G.; Hsieh, Jim

doi:10.1016/j.jfineco.2009.02.004

Cited by 392 publications

(204 citation statements)

References 23 publications

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“…In equity markets, short sales correctly predict negative returns (Aitken, Frino, McCorry, and Swan 1998;Boehmer, Jones, and Zhang 2008;Diether, Lee, and Werner 2009;Cohen, Diether, and Malloy 2007), aid price discovery (Boehmer and Wu 2013), and exploit profitable opportunities provided by downgrade announcements (Christophe, Ferri, and Hsieh 2010). Short sellers do not anticipate news, but have superior ability to process news (Engelberg, Reed, and Ringgenberg 2012).…”

Section: The Short Selling Literaturementioning

confidence: 99%

Unconventional monetary policy and the behavior of shorts

McInish¹,

Neely²,

Planchon³

2017

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In November 2008, the Federal Reserve announced the first of a series of unconventional monetary policies, which would include asset purchases and forward guidance, to reduce longterm interest rates. We investigate the behavior of shorts, considered sophisticated investors, before and after FOMC announcements not fully anticipated in spot bond markets. Short interest in Treasury and agency securities declined prior to expansionary announcements, indicating shorts anticipated these surprises, and declined further after these announcements. The failure of shorts to reinstitute their positions after the last purchase announcement confirms that the Fed convinced sophisticated investors that interest rates would remain low. Unconventional monetary policy and long yields during QE1: Learning from the shorts

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Section: The Short Selling Literaturementioning

confidence: 99%

Unconventional monetary policy and the behavior of shorts

McInish¹,

Neely²,

Planchon³

2017

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“…Similarly, Chung, Elder, and Kim (2010) suggest that analyst help mitigate information asymmetry between firms and investors by serving a governance role, deterring corporate wrongdoing. On the other hand, studies such as Irvine, Lipson, and Puckett (2007), Juergens andLinsey (2009), andChristophe, Ferri, andHsieh (2010) suggest that analysts may also increase adverse selection risk among investors by sharing information privately with preferred clientele ahead of publicly releasing their forecasts or recommendations.…”

Section: Empirical Evidencementioning

confidence: 99%

Analysts’ Forecasts and Asset Pricing: A Survey

Kothari

Verdi

2016

Annu. Rev. Financ. Econ.

191

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This survey reviews the literature on sell-side analysts' forecasts and its implications for asset pricing. We review the literature on the supply and demand forces shaping analysts' forecasting decisions as well as the implications of the information they produce for both the cash flow and the discount rate components of security returns. Analysts' forecasts bring prices in line with the expectations they embody, consistent with the notion that analysts' forecast contain information about future cash flows. However, analysts' forecasts exhibit predictable biases and the market appears to underreact to the information in forecasts and not fully filter the biases in the forecasts. Analyst forecasts are also helpful in estimating expected returns on securities, but evidence on the relation between analysts' forecasts and expected returns is still scarce. We conclude by identifying unanswered questions and offering suggestions for future research.

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“…By accounting for the previous findings indicating that short sellers in stock markets are informed traders, analysts might consider that the one who issues the negative opinion has more private information than the others do (Christophe et al, 2004;Boehmer et al, 2008;Christophe et al, 2010). Thus, analysts are better off following the downgrade to save their clients from loss.…”

Section: Do Analysts Herd On Recommendations?mentioning

confidence: 99%

Do Security Analysts Herd on Stock Recommendations and Does It Affect Returns?

Lin

Jang²,

Tsang³

2013

IJEF

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This study explores the herding behavior of security analysts, the firm characteristics in attracting herding, and the consequences of the herding recommendations on returns in China's stock market. By applying the LSV method, the stock recommendations of analysts are partitioned into buy-and sell-recommendations. The results show that the herding level of sell-recommendation is greater than that of buy-recommendation, which is particularly evident in the bear market. Moreover, investors selling the holdings that analysts herd to recommend "sell" might help avoid losses in the bear market. Notably, when in the bull market, if analysts herd to make sell-recommendations, investors might gain more by acting conversely. These performance variations according to market sentiments appear to be partially explained by a firm's characteristics based on additional regression analyses and are partially attributed to analysts' individual attitudes toward market sentiments.

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Informed trading before analyst downgrades: Evidence from short sellers

Cited by 392 publications

References 23 publications

Unconventional monetary policy and the behavior of shorts

Unconventional monetary policy and the behavior of shorts

Analysts’ Forecasts and Asset Pricing: A Survey

Do Security Analysts Herd on Stock Recommendations and Does It Affect Returns?

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