Abstract
This study examines irrational stock market reactions to analyst recommendation revisions depending on investor sentiment levels prior to analyst report announcements. We construct a firm-specific sentiment indicator by extending Huang et al. (2015, Review of Financial Studies, 28, pp.791–837). Analyst recommendation revisions have more pronounced effects for downgrades, which is attributable to sentiment effects. Domestic investors tend to react less to upgrades (downgrades) news when their prior beliefs are pessimistic (optimistic), implying that they are overconfident. The domestic investors drive sentiment trades, whereas foreign investors are not biased.
| Original language | English |
|---|---|
| Article number | 101376 |
| Journal | Research in International Business and Finance |
| Volume | 56 |
| DOIs | |
| Publication status | Published - Apr 2021 |
| Externally published | Yes |
Keywords
- Analyst recommendation
- Behavioral finance
- Domestic investors
- Firm-specific sentiment
- Overconfidence
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Kim, K., Ryu, D., & Yu, J. (2021). Do sentiment trades explain investor overconfidence around analyst recommendation revisions? Research in International Business and Finance, 56, Article 101376. https://doi.org/10.1016/j.ribaf.2020.101376