Is Sell‐Side Research More Valuable in Bad Times?*

Is Sell‐Side Research More Valuable in Bad Times?*

  • ROGER K. LOH
  • RENÉ M. STULZ

Article first published online: 7th February 2018 DOI: 10.1111/jofi.12611

Abstract


Because uncertainty is high in bad times, investors find it harder to assess firm prospects and hence should value analyst output more. However, higher uncertainty makes analysts’ tasks harder, so it is unclear whether analyst output is more valuable in bad times. We find that in bad times, analyst revisions have a larger stock‐price impact, earnings forecast errors per unit of uncertainty fall, and analyst reports are more frequent and longer. The increased impact of analysts is also more pronounced for harder‐to‐value firms. These results are consistent with analysts working harder and investors relying more on analysts in bad times.

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