Investors’ Greed and Fear: An Event Study of Analyst Recommendations

Edited book (chapter)

Wang, Qingxia (Jenny). 2022. "Investors’ Greed and Fear: An Event Study of Analyst Recommendations." Haron, Razali (ed.) Financial Crises - Challenges and Solutions. IntechOpen. pp. 1-17
Chapter Title

Investors’ Greed and Fear: An Event Study of Analyst Recommendations

Book Chapter CategoryEdited book (chapter)
Book TitleFinancial Crises - Challenges and Solutions
Authors
AuthorWang, Qingxia (Jenny)
EditorsHaron, Razali
Page Range1-17
SeriesBusiness, Management and Economics
Chapter Number2
Number of Pages17
Year2022
PublisherIntechOpen
ISBN9781803568669
9781803568676
9781803568683
ISSN2753-894X
Digital Object Identifier (DOI)https://doi.org/10.5772/intechopen.107187
Web Address (URL)https://www.intechopen.com/online-first/83823
Abstract

We investigate the effect of the skewness developed by the CBOE, called SKEW, on investors’ reactions to analyst recommendations. Our results show that the abnormal stock returns around analyst recommendation revisions are closely correlated with contemporaneous SKEW changes. Specifically, positive (negative) abnormal returns following analyst recommendation upgrades (downgrades) are stronger when daily SKEW increases (decreases). A potential explanation for this relation is that SKEW captures investors’ greed (excitement) in the stock market. Similar to the CBOE VIX, SKEW might act as another measure to reflect investors’ moods or sentiments. However, in contrast to VIX, which is usually used as investors’ fear gauge, SKEW is the opposite of investors’ fear, measuring investors’ consensus view of future positive news. Furthermore, we show that the magnitudes of abnormal returns associated with the change in SKEW are larger for the NASDAQ than for the NYSE on recommendation announcement days. This may manifest the different types of firms listed on these two stock exchanges.

Keywordsanalyst recommendation revision, abnormal return, investors’ greed, investors’ fear, SKEW, VIX
ANZSRC Field of Research 2020380204. Panel data analysis
380199. Applied economics not elsewhere classified
380107. Financial economics
Byline AffiliationsCentre for Applied Climate Sciences
Institution of OriginUniversity of Southern Queensland
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