Reaction of the Stock Market to the Recommendations of Analysts

This work focuses on measuring the anomalous returns that occur in the Russian market following the revision of the analyst's recommendation. Studies touching on the problem of the market analysts’ influence on the stock market are highly relevant, since the market for analytics has already reached a significant scale, but remains poorly understood. Conducting an event analysis on recommendations for 30 companies of the Russian market confirmed that the market responds to the updated recommendations: the average anomalous yield is significant in the first and second days after the event. However, the reaction is short-term and temporary, that is, a cumulative increase or decrease in the anomalous yield does not have statistical significance. Similar results are resistant to changes in the size of the event window and indicate the inefficiency of the market and the information value of recommendations revisions for analysts. Evaluation of linear regressions for events-increases and decreases has shown that the value of the covered company, the value of the investment bank, the activity of analysts in relation to the stock before the event have a significant impact on the magnitude of the market reaction. Also, a more informative change of recommendation for an investor is a revision in the direction of “buy” and “sell” rather than “hold”.