We thank an anonymous referee, Jason Karceski, Jay Ritter, and seminar participants at the University of Florida for useful comments.
The First Analyst Coverage of Neglected Stocks
Version of Record online: 22 JUN 2010
© 2010 Financial Management Association International
Volume 39, Issue 2, pages 555–584, Summer 2010
How to Cite
Demiroglu, C. and Ryngaert, M. (2010), The First Analyst Coverage of Neglected Stocks. Financial Management, 39: 555–584. doi: 10.1111/j.1755-053X.2010.01084.x
- Issue online: 22 JUN 2010
- Version of Record online: 22 JUN 2010
We examine the first analyst coverage of 549 “neglected” stocks that publicly traded at least one year without research coverage. The stocks experience a +4.86% abnormal return at initiation announcement. Positive returns are driven by positive coverage and not the mere introduction of coverage. Initiations from investment banks elicit lower announcement returns if the bank had a prior business relationship with the covered firm. Research firms paid by the covered company to provide coverage elicit announcement returns that are not significantly different from other analysts. Announcement returns are also influenced by liquidity increases and factors consistent with downward-sloping demand curves.