A Comparison Of Buy-Side And Sell-Side Analysts

ASU Author/Contributor (non-ASU co-authors, if there are any, appear on document)
Jeffrey Hobbs PhD, Professor (Creator)
Appalachian State University (ASU )
Web Site: https://library.appstate.edu/

Abstract: There is very little research on the topic of buy-side analyst performance, and that which does exist yields mixed results. We use a large sample from both the buy-side and the sell-side and report several new results. First, while the contemporaneous returns to portfolios based on sell-side recommendations are positive, the returns for buy- side analysts, proxied by changes in institutional holdings, are negative. Second, the buy-side analysts' underperformance is accentuated when they trade against sell-side analysts' recommendations. Third, abnormal returns positively relate to both the portfolio size and the portfolio turnover of buy-side analysts' institutions, suggesting that large institutions employ superior analysts and that superior analysts frequently change their recommendations. Abnormal returns are also positively related to buy-side portfolios with stocks that have higher analyst coverage, greater institutional holding, and lower earnings forecast dispersion. Fourth, there is substantial persistence in buy-side performance, but even the top decile performs poorly. These findings suggest that sell-side analysts still outperform buy-side analysts despite the severe conflicts of interest documented in the literature.

Additional Information

Hobbs, J. and V. Singh (2015). "A comparison of buy-side and sell-side analysts." Review of Financial Economics 24: 42-51. https://doi.org/10.1016/j.rfe.2014.12.004. Publisher version of record available at: https://www.sciencedirect.com/science/article/pii/S1058330015000038
Language: English
Date: 2015
Sell-side analysts, Buy-side analysts, Institutional investors, Analyst recommendations, Market ef?ciency

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