Analysts’ optimism and stock crash risk
ISSN: 0307-4358
Article publication date: 7 January 2020
Issue publication date: 19 March 2020
Abstract
Purpose
The purpose of this paper is to investigate whether analysts’ optimism affects the stock crash risk.
Design/methodology/approach
The sample covers 49,246 firm-year observations for the period between 1995 and 2015. The authors use OLS regressions with firm and year fixed effects for analyses.
Findings
The study finds that there is a positive association between analysts’ optimism and stock crash risk. Such a positive impact is more pronounced for firms with opaque information environment and for analysts who are considered ex ante credible.
Research limitations/implications
The results indicate that analysts’ optimism can be an important source of stock crash risk.
Practical implications
The findings can be useful for informational users of analyst reports. Given that information provided by analysts might have negative consequences, the empirical results can be useful in assessing future stock return behaviors.
Originality/value
This paper has the potential to shed light on the large literature of crash risk. Prior studies suggest that crash is driven by the agency tension between shareholders and managers. It remains possible that crashes could be caused by overpriced stocks in the absence of bad news hoarding. The paper investigates crash from a perspective, financial analysts, that is underexplored.
Keywords
Acknowledgements
The authors would like to thank Don Johnson (Editor), two anonymous reviewers and Sangwan Kim for their helpful suggestions. All remaining errors are of the author’s own.
Citation
Cho, H. and Kim, R. (2020), "Analysts’ optimism and stock crash risk", Managerial Finance, Vol. 46 No. 3, pp. 323-343. https://doi.org/10.1108/MF-11-2018-0540
Publisher
:Emerald Publishing Limited
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