Analyst coverage and the idiosyncratic skewness effect in the Taiwan stock market |
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| Institution: | 1. School of Economics and Management, Nanchang University, Nanchang, China;2. Department of Finance, National Central University, Taoyuan, Taiwan;1. Manning School of Business, University of Massachusetts Lowell, 72 University Avenue, Lowell, MA 01854, United States of America;2. Robert C. Vackar College of Business & Entrepreneurship, University of Texas Rio Grande Valley, 1201 West University Dr., Edinburg, TX 78539, United States of America;1. School of Accounting, Xijing University, Xi''an, Shaanxi, China;2. University of Essex, Southend Campus, United Kingdom;3. Southampton Business School, University of Southampton, Southampton, United Kingdom;4. Nanjing Forestry University, China;5. Malaviya National Institute of Technology (MNIT), Jaipur, India;1. School of Finance, Zhejiang University of Finance and Economics, Hangzhou, China;2. Financial Innovation and Inclusive Finance Research Center, Zhejiang University of Finance and Economics, Hangzhou, China;1. Business School, Hunan University, Changsha 410082, China;2. Center for Resource and Environmental Management, Hunan University, Changsha 410082, China |
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| Abstract: | In this study, we investigate the effect of analyst coverage on the idiosyncratic skewness (IS) anomaly. We adopt the ordinary least square method with the corresponding standard errors that are heteroskedasticity consistent and clustered by firm. Our results show that the IS anomaly exists in the Taiwanese stock market, and analyst coverage mitigates it. Moreover, we use one exogenous shock on analysts due to the mergers and closures of brokerages to address the endogenous concern, and to confirm that analyst coverage reduces the IS anomaly. Specifically, the buy and upgrade recommendations of analysts mitigate the negative IS spreads, but their sell and downgrade recommendations aggravate those spreads. Further, we use a quasi-natural experiment on short-sale constraints in the Taiwanese stock market and find that the effects of analysts' recommendations on the negative IS spreads are not subsumed by those constraints. |
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