*3.1.1 The effect on day* �*1 and day 0*

**Table 3** reports the effect of SKEW on investors' reaction to analyst recommendation revisions on days �1 and 0.

Panels A and B present the results for the NYSE and the NASDAQ, respectively. ΔSKEW is the change of SKEW corresponding to day *t* for stock *i*'s recommendation revisions. We show that the contemporaneous SKEW changes have a statistically significant effect on the abnormal returns around recommendation revisions. An increase (decrease) in SKEW is related to a larger (smaller) average AR for both


#### **Table 3.**

*The effect of contemporaneous daily changes in SKEW on the abnormal returns (ARs) around event days for the NYSE (Panel A) and the NASDAQ (Panel B).*

upgrades and downgrades compared with the unconditional AR (see **Table 2**). Take the NYSE for example. For ΔSKEW>0, the average AR on day �1 is 0.60% (0.19%) for upgrades (downgrades), however, for ΔSKEW<0, it is �0.13% (�0.43%). The difference of the average AR between ΔSKEW>0 and ΔSKEW<0 is statistically significant, with a value of 0.73% (*t*-statistic = 11.48) for upgrades and 0.62% (*t*statistic = 8.02) for downgrades.

On day 0, the corresponding average AR become more positive (negative) for upgrades (downgrades), manifested by the results shown in **Table 2**. Specifically, for ΔSKEW> 0, the average AR is 2.25% (�1.70%) for upgrades (downgrades); forΔSKEW<0, it becomes 1.52% (�2.34%). The findings indicate that abnormal returns around analyst recommendation revisions are closely associated with contemporaneous SKEW changes. That is, positive events (upgrades) drive significantly higher ARs captured by the daily SKEW increase (i.e., a higher expectation of earnings, or greed), and negative events (downgrades) drive significantly lower ARs captured by the daily SKEW decrease (i.e., a lower expectation of earnings).

For the NASDAQ, the results are generally consistent with those for the NYSE. Interestingly, on day �1, we find that the magnitudes of average ARs for all cases (upgrades and downgrades, ΔSKEW>0 and ΔSKEW< 0) are generally close to corresponding results of the NYSE. For example, for upgrades and ΔSKEW>0, the average AR is 0.48% for the NASDAQ and 0.60% for the NYSE, with a difference of 0.12%. However, on day 0, the average ARs' corresponding magnitudes are larger for the NASDAQ than for the NYSE. Again, for upgrades and ΔSKEW>0, the average AR is 2.25% for the NASDAQ and 3.56% for the NYSE, with a difference of 1.31%, almost ten times of that on day �1. On the one hand, this implies that SKEW is more informative on the event day than the day before. On the other hand, the findings indicate that recommendation revision may have a stronger effect on stocks listed on the NASDAQ than those listed on the NYSE. This is probably explained by the potential difference in the types of listing firms and the ways how investors perceive the firms. The NASDAQ is typically a high-tech market, the NASDAQ-listed firms are mainly technology, young and fast-growing firms. The stocks listed on the NASDAQ are considered to be more volatile (or say highly uncertain), and accordingly, investors demand a higher return [34]. Correspondingly, this high volatility (uncertainty) contributes to higher abnormal returns for recommendation upgrades but more negative abnormal returns for recommendation downgrades.

*Investors' Greed and Fear: An Event Study of Analyst Recommendations DOI: http://dx.doi.org/10.5772/intechopen.107187*
