The Value of Equity Analysts: An Empirical Study of the Informativeness of Analyst Revisions

Abstract

This thesis investigates the informativeness of analyst recommendation revisions and target price revisions in absence of recommendation changes. The 69 companies included in the Oslo Børs Benchmark Index (OSEBX) are examined over the period of 2011 to 2021. The analysis is conducted by the application of the event study framework, and we study whether analyst revisions are associated with abnormal returns. We separate target price revisions in absence of recommendation revisions by the degree of innovation potential in the revision signal. Our findings suggest that recommendation revisions are associated with large abnormal returns and that the revisions are informative to investors. The evidence in the Norwegian market context is consistent with the majority of the literature focusing on short-term effects of analyst revisions. Further, target price revisions in absence of recommendation changes are associated with significant abnormal returns, and they are relevant to market participants. The economic impact of high-innovation target price revisions is larger by a factor of two to three compared to low-innovation target price revisions when the recommendation level is reiterated. The main conclusions are robust to the exclusion of revisions adjacent to earnings announcements, but we show that analysts somewhat piggyback their revisions on recent news and events. However, the evidence suggests that analysts are providing timely aggregations of the information environment and that the revisions are informative to financial markets.