Do Analysts Overreact to Good News and Underreact to Bad News: A Hazard Model Approach Discussant: Yun-Yi Wang, Feng Chia University 2010 NTUICF, Taipei, Taiwan

Summary and Main Results This study isolates incentives and cognitive processing biases through the timing of analysts’ recommendation revisions. when they control for favorable preceding recommendations analysts delay conveying bad news which is consistent with the incentives and cognitive dissonance hypotheses. when they control for unfavorable preceding recommendations analysts delay conveying good news which is only consistent with the cognitive dissonance hypothesis.

Strengths and Contributions The authors use analysts’ recommendation reversion to isolates incentives and cognitive processing biases. Empirical strategy is innovative and new. Security analyst optimism is a well-known phenomenon. My points will be suggestions intented to improve the paper.

Comment and Suggestion 1 Hazard model: Previous literature (ex, Mokoaleli-Mokoteli et al., 2009, JBFA) shows that analysts’ recommendations are associated with previous stock price performance, growth status of the firm (low book-to-market), firm size, corporate relationships between their investment bank employers and the firms they are following,… Is it possible to include control variable in the hazard model?

Comment and Suggestion 2 The observed behavior can be explained by several biases at the same time. Can be explained by any other rational or irrational explanations?

169.72 Favorable ︿ Favorable Unfavorable 175.33 Favorable 170.66 ﹀ Unfavorable Unfavorable 136.66 If the analyst need to reverse their preceding recommendation, they need more time to confirm whether the news is correct and whether the reversion is necessary.