Abstract

http://ssrn.com/abstract=1131626
 
 

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Sell Side School Ties


Andrea Frazzini


AQR Capital Management, LLC

Christopher J. Malloy


Harvard Business School; National Bureau of Economic Research (NBER)

Lauren Cohen


Harvard Business School; National Bureau of Economic Research (NBER)

May 2008

NBER Working Paper No. w13973

Abstract:     
We study the impact of social networks on agents’ ability to gather superior information about firms. Exploiting novel data on the educational backgrounds of sell side equity analysts and senior officers of firms, we test the hypothesis that analysts’ school ties to senior officers impart comparative information advantages in the production of analyst research. We find evidence that analysts outperform on their stock recommendations when they have an educational link to the company. A simple portfolio strategy of going long the buy recommendations with school ties and going short buy recommendations without ties earns returns of 5.40% per year. We test whether Regulation FD, targeted at impeding selective disclosure, constrained the use of direct access to senior management. We find a large effect: pre-Reg FD the return premium from school ties was 8.16% per year, while post-Reg FD the return premium is nearly zero and insignificant. In contrast, in an environment that did not change selective disclosure regulation (the UK), the analyst school-tie premium has remained large and significant over the entire sample period.

Number of Pages in PDF File: 45

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Date posted: May 12, 2008  

Suggested Citation

Frazzini, Andrea and Malloy, Christopher J. and Cohen, Lauren, Sell Side School Ties (May 2008). NBER Working Paper No. w13973. Available at SSRN: http://ssrn.com/abstract=1131626

Contact Information

Andrea Frazzini
AQR Capital Management, LLC ( email )
Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
United States
203-742-3894 (Phone)
203-742-3394 (Fax)
HOME PAGE: http://www.econ.yale.edu/~af227/
Christopher J. Malloy
Harvard Business School ( email )
Soldiers Field Road
Baker Library 277
Boston, MA 02163
United States
617-495-4383 (Phone)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Lauren Cohen (Contact Author)
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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