Information role of analysts' target prices: Event and intra-day analysis

I have documented that target prices subsumed in downgrade recommendations are the most informative while target prices in coverage reiteration are the least informative. The First Call database enables me to extend the analysis to an intraday frequency. Conducting event studies using high frequency data, is even more critical given the advent of information technology systems has dramatically changed the landscape of stock trading. The modified approach to event study is relevant to the fast-changing trading environment in today's capital market. For upgrades, there are significant positive market-adjusted returns lasting 20 minutes; for downgrades, there are significant negative market-adjusted returns lasting 25 to 35 minutes. By constructing portfolios on the basis of target price information measures (TP/P, DeltaTP/TP -1 and DeltaTP/P), I also document that the information subsumed in target price revision is more useful than target price alone. Furthermore, the dramatic rise in trading activity coupled with a shift in order imbalances implies that the market interprets recommendations with target price changes broadly as a liquidity event. More importantly, I find that target prices are informative both unconditionally and conditionally on the type of recommendations and rating revision at intraday frequency. The investors seek out more information from target price revisions when recommendations are unfavourable.