Abstract
Using a sample of hedge fund activist events from 2001 to 2014, we assess analysts’ reaction to hedge fund activism by considering changes in their recommendations and their earnings forecast accuracy. Following the arrival of a hedge fund activist, a preponderance of recommendations move to or are reinstated at the Hold level, the accuracy of analyst earnings forecasts decreases, and there is a decline in analyst forecast activity. Overall, our findings suggest hedge fund activism increases analyst uncertainty, limiting their ability to add value in this setting.
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