Holidays’ effect and optimism in analyst recommendations: evidence from Europe

Abstract

This paper documents Holidays effect in analyst recommendations in European stock markets (Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Spain, and Sweden) during the period between 2003 and 2014. Our results indicate that analysts issue overly pessimistic recommendations on pre-holidays and overly optimistic recommendations on post-holidays (Christmas, Halloween and valentine). Our results are consistent with prior literature on day-of-the-week effect that documents upward trend in stock prices during the week and downward trend in stock prices over the weekend. We argue that by issuing bulk of favorable (optimistic) recommendations on Post-Holidays, analysts may hope to benefit from upward trend in stock prices. Similarly, by issuing bulk of unfavorable (pessimistic) recommendations on pre-holidays, analysts may hope to benefit from downward trend in stock prices. Moreover, we also show that our results are more pronounced in firms with higher information uncertainty and among less experienced analysts