**4. Conclusions**

We investigate the effect of the CBOE SKEW index on the investors' reaction to analyst recommendations. We hypothesize that the abnormal returns around analyst recommendation revisions are closely correlated with contemporaneous SKEW changes. Our results for both the NYSE and the NASDAQ confirm this hypothesis. We show that when SKEW increases (i.e., increase in investors' greed) before or on the recommendation announcement days, investors could achieve higher average abnormal returns than the case with decreasing SKEW. That is, investors might gain more if they invest in stocks with upgrade recommendations during the period with an increase in SKEW. This is because investors are more optimistic and excited about the performance of the stock market. Furthermore, we observe that investors could gain higher average abnormal returns on days of upgrades and lose more on days of downgrades when investing in stocks listed on the NASDAQ than those listed on the NYSE.

We also examine the effect of VIX on the investors' reaction to analyst recommendations. The results are consistent with the findings of Kliger and Kudryavtsev [16]. Our results further demonstrate that SKEW and VIX show different effects on the financial markets. VIX is normally considered as an investors' fear gauge, but we show that SKEW could be considered as a measure for investors' greed, supported by a significantly positive relationship between the changes in SKEW and abnormal stock returns, regardless of recommendation upgrades or downgrades.
