The price impact of analyst revisions and the state of the economy: Evidence around the world

Abstract

This paper examines the price impact of analyst revisions in distinct economic states around the world. We find stronger average 2-day cumulative abnormal returns in bad times, though this pattern is mainly observed in developed countries. In addition, trading strategies following analyst revisions, with holding periods from 1 to 6 months, are generally more profitable in good times with lower macroeconomic uncertainty, after controlling for market and common risk factors. The profitability, however, disappears or declines substantially after accounting for time-varying risk premia conditioned on lagged macroeconomic information, indicating a reduced information production role played by analysts in recent decades.