Is the response of analysts to information consistent with fundamental valuation? The case of Intel

This paper examines the market reaction to a press release issued by Intel on Thursday, September 21, 2000. In response to that release, Intel stock price dropped 30%, erasing over $120 billion of shareholder wealth. By analyzing the press release in conjunction with analyst reports, and by using a discounted cash flow valuation model, I argue that the information conveyed by the announcement was not sufficient to explain the stock price drop. Surprisingly, analysts were more strongly recommending purchase of the stock in August 2000 at $75 than in September 2000 at $40. This suggests a positive feedback between stock price movements and analyst recommendations that may increase the volatility of prices.