Equity Analysts and the Market's Assessment of Risk

The traditional view of equity analysts is that they are a source of new information about future cash flows. We broaden this view by demonstrating that equity analysts are also a substantive source of new information about priced risk. In particular, we document that, when announced, changes in ana...

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Bibliographic Details
Published in:	Journal of accounting research 2012-12, Vol.50 (5), p.1287-1317
Main Authors:	LUI, DAPHNE, MARKOV, STANIMIR, TAMAYO, ANE
Format:	Article
Language:	eng
Subjects:	Analytical forecasting Business risks Capital market Capital returns Cash flow Credit rating Credit ratings Credit risk Equity Expected returns Financial risk Investment risk Investors Market prices Recommendations Stock prices
Online Access:	Get full text
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Summary:	The traditional view of equity analysts is that they are a source of new information about future cash flows. We broaden this view by demonstrating that equity analysts are also a substantive source of new information about priced risk. In particular, we document that, when announced, changes in analyst risk ratings distinctly and significantly affect equity returns, and are generally followed by significant changes in Fama-French factor loadings. Also, while less frequent than credit rating changes, equity risk rating changes are timelier, and with a larger overall stock price impact than credit rating changes.
ISSN:	0021-8456 1475-679X