Journal of Financial and Quantitative Analysis

Research Article

How Do Analyst Recommendations Respond to Major News?

Jennifer Conrada1, Bradford Cornella2, Wayne R. Landsmana3 and Brian R. Rountreea4

a1, Department of Finance, University of North Carolina at Chapel Hill, Chapel Hill, NC 27514

a2, California Institute of Technology, Division of the Humanities and Social Sciences, Pasadena, CA 91125

a3, Department of Accounting, University of North Carolina at Chapel Hill, Chapel Hill, NC 27514

a4, Department of Accounting, Rice University, Houston, TX 77005.


We examine how analysts respond to public information when setting stock recommendations. We model the determinants of analysts' recommendation changes following large stock price movements. We find evidence of an asymmetry following large positive and negative returns. Following large stock price increases, analysts are equally likely to upgrade or downgrade. Following large stock price declines, analysts are more likely to downgrade. This asymmetry exists after accounting for investment banking relationships and herding behavior. This result suggests recommendation changes are “sticky” in one direction, with analysts reluctant to downgrade. Moreover, this result implies that analysts' optimistic bias may vary through time.