Coverage initiations : an exploratory casestudy

Sammanfattning: This master thesis is exploring the influence of coverage initiation reports issued by commissioned equity research analysts on stock prices and trading volumes. Equity research actors, with their expertise and skill, are providing the market with valuable information and filling the knowledge gaps that investors may have. It is suggested that analysts' publications, being reliable, professional and unbiased, should have a strong weight in an investor’s decision-making process. At present, the challenge lies in investigating the impact of publications by relatively new actors in the field of equity research - sponsored equity research providers. The topic has yet seen only limited attention in research despite of its ever more increasing popularity. It is further suggested that the published reports in some cases affect stock prices of the analyzed company significantly. It is of value for both financial institutions and investors to see if that is the case. The method applied is a classic event study - a time tested method widely used for analysis of impact of events on stock prices. Three different models are used to calculate abnormal returns and excessive trading volumes: mean adjusted, market adjusted and ordinary least squares market adjusted models. The conclusion is drawn by the authors that initiation coverage reports issued by sponsored equity research actors do have a significant impact on stock prices and trading volumes. All models used in the event study have shown that there are significant abnormal returns (on average around 4%) and excessive trading volumes (for the majority of the companies in the dataset) on the day of publication. The yielded knowledge can be used by retail investors in their investment strategies. It is also of interest for the equity research actors themselves to see what impact, if any, their work has on the stock prices and trading volumes to further stimulate the willingness to provide unbiased and qualitative research for investors.