Journal of Finance Vol. 60 No. 2 2005
Trade Generation, Reputation, and Sell‐Side Analysts
Abstract
This paper examines the trade‐generation and reputation‐building incentives facing sell‐side analysts. Using a unique data set I demonstrate that optimistic analysts generate more trade for their brokerage firms, as do high reputation analysts. I also find that accurate analysts generate higher reputations. The analyst therefore faces a conflict between telling the truth to build her reputation versus misleading investors via optimistic forecasts to generate short‐term increases in trading commissions. In equilibrium I show forecast optimism can exist, even when investment‐banking affiliations are removed. The conclusions may have important policy implications given recent changes in the institutional structure of the brokerage industry.
- DOI
- 10.1111/j.1540-6261.2005.00743.x
- Volume
- 60
- Issue
- 2
- Pages
- 673-717
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref