Investor Attention to Stock Recommendations

Abstract

This study investigates the role of investor attention to stock recommendations on explaining the post-recommendation price drift. We construct a measure of attention to stock recommendations based on the abnormal trading volume on the days surrounding the recommendation. Our findings suggest that stock-recommendations which attract high investor attention consistently generate more pronounced post-announcement drifts than recommendations which receive low investor attention. In addition, we provide evidence that this phenomenon is mainly driven by upgrades rather than downgrades, consistent with the idea that increased volume leads to higher visibility and an increased number of unsophisticated investors buying the stock. Our findings remain robust when we control for firm-attention, analyst characteristics, recommendation characteristics and earnings announcements around the recommendation date.