The Impact of Sell-Side Research in the Norwegian Stock Market : An Empirical Investigation of the Relationship Between Sell-Side Reports, Stock Returns and Trading Volume on Oslo Stock Exchange

Abstract

This paper examines the impact of sell-side research on stocks listed on the Oslo Stock Exchange by identifying the incremental changes to the stock returns and the trading volume for the OBX Index constituents, using a sample of 477 manually collected sell-side reports issued between 2016 and 2020. In line with prevalent academic research on identifying incremental changes to stock returns and trading volume, this paper employs the event study framework to identify said changes on an individual and aggregate basis for various report characteristics, the OBX Index and index constituents on the day of report issuance. The empirical evidence suggests that sell-side reports generate abnormal trading volume on the day of report issuance. There is also evidence to support abnormal trading volume on the day prior and the first few days following report issuance. Furthermore, reports accompanied by upgraded recommendations have the most significant impact on trading volume, but the evidence also suggests that reiterations and downwards revisions generate abnormal trading volume. In contrast, this study finds no evidence to support that sell-side reports generate abnormal returns for the OBX Index constituents collectively on the day of issuance. However, reports where a recommendation is revised upwards or downwards generate abnormal returns. This paper finds heightened interest in the researched securities on the day of report issuance, using trading volume to measure investor recognition. The heightened interest in the security in question does not translate to a decisive impact on returns on issuance, but the evidence suggests that there is a significant abnormal return on the first day following issuance. The findings are economically important in the sense that they complement the notion that analysts play a vital role in increasing investor recognition for covered companies (Merton, 1987) while compensated for doing so (Groysberg et al., 2011), and support that this notion holds for the Norwegian stock market as well.