From Rice University,
Using intraday data that separated stock market reactions to company news releases issued between 2003 and 2010 from reactions to analysts’ revisions to recommendations, the researchers found that analysts do not rehash the company line. Rather, they help investors with stock valuation by issuing confirming revisions and also reverse prevailing market beliefs by issuing contrary revisions. Only 28 percent of revisions actually dovetailed with the corporate news they followed, the study found. These revisions, moreover, actually offered more information than did the corporate releases.
The study is the first to investigate short-window intraday market reactions to revisions issued after hours, which account for 70 percent of all recommendation revisions in the study’s sample period. Analysts’ incentives to issue revisions after hours appear to reflect demands from large institutional clients, who dominate after-hours trading, the study found. More importantly, the results show that the after-hours revisions are associated with significantly greater price reactions and different price-reaction patterns than revisions issued during regular trading hours.