Document Type
Article
Publication Date
2-27-2021
Publication Title
Journal of Accounting Research
First page number:
911
Last page number:
958
Abstract
We document that stocks that have optimistic (pessimistic) consensus recommendations and are currently held by many short-term institutions exhibit large stock-return reversals: Their large past outperformance (underperformance) is followed by large negative (positive) future alphas. The predictable return reversals originate from overreaction to past recommendation releases and the correction of these overreactions around future releases. Results are stronger when earnings news is released and at firms with higher fundamental uncertainty. Further, firms with more short-term institutions show stronger announcement returns and price drift after recommendation changes. Our results are consistent with models of higher order beliefs where short-term institutions coordinate trading around public signals.
Keywords
Term institutions; Analyst recommendations; Mispricing; Higher order beliefs
Disciplines
Business | Economics | Finance and Financial Management | Social and Behavioral Sciences
File Format
File Size
1000 KB
Language
English
Rights
IN COPYRIGHT. For more information about this rights statement, please visit http://rightsstatements.org/vocab/InC/1.0/
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Repository Citation
Cremers, M.,
Pareek, A.,
Sautner, Z.
(2021).
Short-Term Institutions, Analyst Recommendations, and Mispricing: The Role of Higher Order Beliefs.
Journal of Accounting Research
911-958.
http://dx.doi.org/10.1111/1475-679X.12352