Is Sell-Side Research More Valuable in Bad Times?

This resource examines why high-quality sell side research may be more valuable to investors during an economic downturn. Because uncertainty is high in bad times, investors find it harder to assess firm prospects and, hence, should vale analyst output more. We find that, in bad times, analyst revisions have a larger stock-price impact, earnings forecast errors per unit of uncertainty fall, reports are more frequent and longer, and the impact of analyst output increases more for harder-to-value firms. These results are consistent with analysts working harder and investors relying more on analysts in bad times.