Finance

Using a individually collected database for stock recommendations with more than 8,000 research reports issued over the period 2000-2014 on stocks listed in the Austrian Traded Index, we examine short-term market reactions. Besides traditional clustering of recommendation changes (upgrade, and downgrade) we take previous recommendations into account to get a very detailed subset of different event types. In order to consider Austrian market characteristics, we use an ARMA-market-GARCH model in addition to the market model to compare estimation results for abnormal returns. For the most extensive recommendation changes, from SELL to BUY, we document an abnormal return of 1.232 % and from BUY to SELL, −1.534 % compared to pure BUY or SELL recommendations with 0.436 and −0.672 %, respectively. Furthermore we are able to show that the magnitude of abnormal returns on the day of the event depends on the firm size and the delta between the target price of the recommendation and the actual price of the stock. Although we detect higher abnormal returns during the crisis, we do not find statistical evidence that investors tend to trust analysts' opinions more during turbulent times. We conclude that the more sophisticated model does not improve the outcome and therefore a simple market model is sufficient to study events in the Austrian market.

In this paper, we analyze the impact of analyst recommendations on stock prices of firms listed in the Austrian and German stock markets. This empirical study comprises 49,928 recommendations from various analyst houses between 2004 and 2014. We use an event study framework with a market model as the underlying return generating process. Instead of using the pure recommendations as the event, we take the previous recommendation into account and therefore are able to provide more insights to the nature of abnormal returns. In general we can support the efficient market hypothesis that new information is incorporated in the stock price immediately. For the smaller Austrian market though, we find that some event types cause an overreaction while others take two days to incorporate, compared to the seemingly more efficient German market. Besides abnormal returns, abnormal trading volume also suggests that there is an information leak in both markets, which might be attributed to preferr...

Traditionally, portfolios are optimized with a single-regime Markowitz model, using volatility as the risk measure and historical return as the expected return. This paper shows what effects a regime-switching framework, alternative risk measures (modified value-at-risk and conditional value-at-risk) and return measures (capital asset pricing model estimates and Black-Litterman estimates) can have on asset allocation as well as the absolute and relative performance of portfolios. We show that the combination of alternative risk and return measures within the regime-switching framework gives significantly better results in terms of performance and a modified Sharpe ratio. The use of alternative risk and return measures also mitigates the issue that asset returns are not often normally distributed or serially correlated. To eliminate the empirical shortcomings of asset returns, an unsmoothing algorithm in combination with the Cornish-Fisher expansion is used.