Analyst coverage and the probability of stock price crash and jump

Abstract

PurposeThe aim of this paper is to document the effect of analyst coverage on the ex ante probability of stock price crash and the ex ante probability stock price jump.Design/methodology/approachThis paper uses the data of non-financial firms from France to test the arguments presented in this paper during the period between 1997 and 2019. The paper also uses flexible quadrants copulas to compute the ex ante probabilities of crashes and jumps.FindingsThe results show that the extent of analyst coverage is positively associated with the ex ante probability of crash and negatively associated with the ex ante probability of jump. The results remain qualitatively the same after several sensitivity checks. The results also show that the relationship between the extent of analyst coverage and the probability of cash and the probability of jump holds when ex post probability of stock price crash and stock price jump is used.Originality/valueUnlike most of the earlier papers on this topic, this paper uses the ex ante probability of crash and jump. This proxy is better suited than the ones used in the prior literature because it is a forward-looking measure.