Analysts’ Recommendations and Press Sentiment: Complementary or Alternative to Drive Investors’ Trading Behavior?

Abstract

This paper focuses on the relationship between financial analysts’ recommendations and press sentiment from the perspective of the attention-grabbing theory. Specifically, attention-grabbing should not be enough to explain the effect that media coverage has on investment decisions, since investors are wary of making a mistake and anticipate the regret of a future loss. Our case study pertains to a column reporting on secondhand information and analysts’ recommendations. Once the column did not report the analysts’ advice anymore, we hypothesized investors also assess the sentiment of the column to make sure they are not making a costly mistake. Event studies on abnormal returns and multivariate analyses show that for columns with explicit analysts’ recommendations the attention-grabbing mechanism directs buying decisions while has no influences on selling decision. In the absence of explicit recommendations, investors transform the columns’ content into implicit recommendations leading their buying decisions when the sentiment is highly positive.