Market Price Reactions of Analyst Revisions and Determining Factors of the German Stock Market

We examine whether analyst recommendations for the German stock market contain new information which, on average, trigger market price adjustments. Our results show that the stock prices react immediately and significantly to changes in the consensus of recommendations. This reaction has a longer lasting effect for downgrades (until event day t+5) than for upgrades (until event day t+2). Moreover, the magnitude of the reaction is -1.54% based on the market-adjusted method and -1.43% for the mean-adjusted method. In terms of percentage reaction, it is larger for downgrades than for upgrades which lead to abnormal returns of only 0.74% and 0.76%, respectively. Besides the examination of the market reaction the results display that different factors determine the observed abnormal return. The findings show that upgrades to strong buy result in a higher stock price reaction than upgrades to another consensus recommendation level. Furthermore, upgrades with a high consensus recommendation revision have a higher stock price impact than a lower revision. On the other hand, downgrades with a higher delta of the target price revision have a larger negative impact on stock prices than target price revisions with a smaller delta.