The Securities Litigation Reform and its Impact on Analyst Research

We examine the effect of the Private Securities Litigation Reform Act of 1995 and the Securities Litigation Uniform Standards Act of 1998 on analyst recommendations. We refer to these acts as the Reform, which addresses the safe harbor provision for forward-looking information. After controlling for other variables, we find higher short-term market reaction following recommendation revisions after the Reform, suggesting that analysts play an increasingly important role. We also find that following upgrades (downgrades), the long-term drifts increase (decrease) in magnitude, and price reversions are less (more) likely