Do Buy-Side Recommendations Have Investment Value

Crawford, Steve; Gray, Wesley R.; Johnson, Bryan R.; Price, Richard A.

doi:10.2139/ssrn.2024175

Cited by 8 publications

(4 citation statements)

References 12 publications

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“…Similarly, Frey and Herbst (2014), using a sample from one firm, find that fund trading is driven more by buy-side recommendations than by sell-side recommendations or fund flows, and that those trades that are triggered by buy-side recommendations yield the highest excess returns. Last, Crawford et al (2012) use data from an invitation-only, Facebook-style event and conclude that buy-side recommendations do have investment value, particularly for firms with small capitalizations and high book-to-market ratios.…”

Section: Introductionmentioning

confidence: 99%

“…We agree with this argument and we address this concern by concentrating on the buy‐side analysts' induced institutional trades that explicitly go against the recommendations of sell‐side analysts for much of our analysis. Additionally, by using the Thomson 13F dataset, we restrict ourselves to using quarterly observations, whereas some studies using proprietary data (see Frey & Herbst, 2014 or Crawford, Gray, Johnson, & Price, 2012, both of which employ daily data) have access to more detailed information on trading behavior, though for limited time periods. While we acknowledge that the main disadvantages of our dataset and sample construction are not eliminated, we also have the advantage of more comprehensively comparing sell‐side and buy‐side analysts over a long period in a way that contains less selection‐ or survivorship‐bias than is present in much of the recent literature.…”

Section: Introductionmentioning

confidence: 99%

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A comparison of buy‐side and sell‐side analysts

Hobbs

Singh

2015

Rev Financ Econ

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a b s t r a c tThere 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 buyside 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.Crown

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

A comparison of buy‐side and sell‐side analysts

Hobbs

Singh

2015

Rev Financ Econ

View full text Add to dashboard Cite

show abstract

“…We agree with this argument and we address this concern by concentrating on the buy-side analysts' induced institutional trades that explicitly go against the recommendations of sell-side analysts for much of our analysis. Additionally, by using the Thomson 13F dataset, we restrict ourselves to using quarterly observations, whereas some studies using proprietary data (see Frey & Herbst, 2014or Crawford, Gray, Johnson, & Price, 2012, both of which employ daily data) have access to more detailed information on trading behavior, though for limited time periods. While we acknowledge that the main disadvantages of our dataset and sample construction are not eliminated, we also have the advantage of more comprehensively comparing sell-side and buyside analysts over a long period in a way that contains less selectionor survivorship-bias than is present in much of the recent literature.…”

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

A Comparison of Buy-Side and Sell-Side Analysts

Hobbs

Singh

2012

SSRN Journal

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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 buyside 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.

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