MIT Sloan School of Management MIT Sloan

Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission, provided that full credit including © notice is given to the source. Abstract We catalog the complete contents of All-American Analyst reports and examine the market reaction to their release. Including the justifications supporting an analyst's opinion reduces, and in some models eliminates, the significance of earnings forecasts and recommendation revisions. Analysts both provide new information and interpret previously released information. The information in a report is most important for downgrades; target prices and the analyst's justifications are the only significant elements for reiterations. No correlation exists between valuation methodology and either analyst accuracy or the market's reaction to a report. Our adjusted R 2 s are much larger than those of studies using only summary measures. This paper investigates the association between market returns and the content of security analysts' reports. In addition, it provides the first detailed catalog of the elements in a typical analyst report. An analyst's report is the culmination of a process that includes the collection, evaluation, and dissemination of information related to a firm's future performance. The majority of these reports include three key summary measures: earnings forecasts, a stock recommendation-such as buy, sell, or hold-and a price target. In addition, many reports present extensive quantitative and qualitative analysis supporting these summary measures. Most previous research on analyst reports examines revisions in only two summary elements: stock recommendations and earnings forecasts. We extend this research by incorporating the contents of analyst reports in their entirety rather than just the individual summary elements such as the stock recommendation. One problem in evaluating stock recommendations alone is that there are a limited number of recommendation levels. More specifically, although analysts have five distinct recommendations-strong buy, buy, hold, sell, and strong sell-at their disposal, they are generally reluctant to use the two negative ratings (see, also incorporating the gradations available in the analysts' price targets and the reports' contents, we overcome many of the disadvantages caused by the use of a few discrete recommendation categories. Our approach to this analysis is captured by the quote " In the end, stock ratings and target prices are just the skin and bones of analysts' research. The meat of such reports is in the analysis, detail, and tone " (see Tsao, 2002). This is especially true for reiterations, which represent almost two thirds of the …