The Relative Informativeness of Analysts’ Stock Return Forecasts and Rating Changes for Insurance Companies

Chen, Leon; Pottier, Steven W.

doi:10.1057/gpp.2015.8

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2016

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“…Chen and Pottier () examine changes in equity analyst stock price forecasts and find that increases (decreases) in stock price forecasts are preceded by decreases (increases) in stock price forecasts, suggesting mean reversion in stock price forecasts. Upward (downward) revisions in stock price forecasts are preceded by higher (lower) actual stock returns.…”

Section: Background and Hypotheses Developmentmentioning

confidence: 99%

RATING CHANGESAND COMPETING INFORMATION: EVIDENCE ON PUBLICLY TRADED INSURANCE FIRMS

Chen

Pottier

2016

J of Risk & Insurance

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We examine the predictive ability of three competing sources of financial information-rating changes, profit changes, and excess stock returns. We find the following significant relations between current and lagged values of these three endogenous variables: (1) rating changes are positively related to past excess stock returns, (2) profit changes are positively related to past excess stock returns, and (3) profit changes and excess stock returns are mean reverting. In addition, profit changes are substantially more predictable than rating changes or excess stock returns, and past values of profit changes account for most of the observed ability to predict current profit changes. In contrast, past profit changes have little predictive ability in relation to excess stock returns or rating changes.

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Section: Background and Hypotheses Developmentmentioning

confidence: 99%