FUNDAMENTAL ANALYSIS WITH ARTIFICIAL NEURAL NETWORK

ABSTRAC

Three essays on stock recommendations:

This dissertation studies stock recommendations made by columnists and financial analysts. The first essay examines the value and profitability of columnist recommendations published in the Business Week, Forbes and Fortune magazines. Empirical results show that columnist recommendations are not profitable in the short- or long-run controlling for market risk, book-to-market, size and momentum effects. The second essay examines the relation between the value of analysts’ recommendations and corporate research and development (R&D) investments. Univariate, calendar-time portfolio and cross-sectional analyses controlling for risk, business complexity, earnings value-relevance, analyst coverage, institutional ownership and bid-ask spread indicate the value of analysts’ recommendations to be significantly more valuable for firms that are more intensely engaged in R&D investments. The final essay, using stock recommendations, examines Regulation FD’s impact on corporate practice of earnings-related selective disclosure to financial analysts. The comparative analysis of the association between analysts’ revisions and subsequent earnings surprises, in the pre- and post- Regulation FD periods reveals a significant reduction in analysts’ earnings-related private information in the post-Regulation FD period.Ph.D.Includes bibliographical references (p. 130-137)by Ari Yezege

Forecast Walk-Downs and Strategic Incentives for Bias

Are strategic incentives for bias among forecasters a necessary condition for forecast walk-downs? We identify the group of professional macro forecasters affiliated with the Federal Reserve System as a setting where forecasters are free from strategic incentives for bias. Unlike sell-side analysts, who have incentives to curry favor with management when forecasting firm-level profits, this group of professional macro forecasters faces strong incentives to produce unbiased forecasts of the U.S. economy. Remarkably, however, we document a walk-down in their GDP growth forecasts, even after excluding the corporate profit component of U.S. output. Whereas most prior explanations for forecast walk-downs are conditioned on preexisting incentives for bias, we find that asymmetrically high forecasting difficulty in downturns relative to upturns of the U.S. economy can explain the macro walk-down even in the absence of such incentives. Overall, our paper contests the traditional view of forecast walk-downs as de facto evidence of strategic incentives for bias. Time-series and cross-sectional tests further illustrate the relevance of our findings for firm-level studies. One overarching implication is that research on sell-side analysts’ forecasts should consider strategic incentives for bias alongside information about the state of the U.S. economy and heterogeneity in the cyclical exposure of individual firms to macro fluctuations

Crises, contagion and cross-listings

We investigate whether cross-listing shares in the form of depositary receipts in overseas markets benefits investors in emerging market countries during periods of local financial crisis from 1994 to 2002. We regress cumulative abnormal returns for three windows surrounding the crisis events on the cross-listing status while controlling for cross-sectional differences in firm age, trading volume, foreign exposure, disclosure quality and corporate governance. Further, we examine cross-listing effects in countries popularly thought to experience contagious effects of these crises. We find that cross-listed firms react significantly less negatively than non-cross-listed firms, particularly in the aftermath of the crisis. The results on contagious cross-listing effects are however mixed. Our findings are consistent with predictions based on theories of market segmentation as well as differential disclosure/governance between developed and emerging markets. We do not find evidence that foreign investors "panic" during a currency crisis.Cross-listing Currency crisis Contagion Market segmentation