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INVESTORS’ TRADING AND RELATIVE PERFORMANCE OF ANALYSTS DURING THE CRISIS PERIOD

Omar Farooq

DOI: 10.22495/cocv11i2c7p3

Abstract

This paper documents the relationship between foreign and local analysts’ recommendations and subsequent trades done by different investor groups – foreign investors, local institutional investors, and local individual investors. Using analysts’ recommendations and investors’ trading data from South Korea, we show that foreign analysts’ buy recommendations and local analysts’ sell recommendations generate significantly more subsequent trade than their respective counterpart recommendations (i.e. local analysts’ buy and foreign analysts’ sell recommendations) during the Asian financial crisis of 1997-98. We argue that the ability of foreign analysts’ buy recommendations and local analysts’ sell recommendations to generate trade is responsible for superior performance foreign analysts’ buy recommendations and local analysts’ sell recommendations in emerging stock markets. We also show that earlier explanations proposed to explain the asymmetric performance of foreign and local analysts’ recommendations do not hold in our sample period.

Keywords: Analyst Recommendations; Asian Financial Crisis; Foreign and Local Analysts; Investor Trading; Optimism; Relative Performance

How to cite this paper: Farooq, O. (2014). Investors’ trading and relative performance of analysts during the crisis period. Corporate Ownership & Control, 11(2-7), 697-707. http://doi.org/10.22495/cocv11i2c7p3

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