Brokerage-Firm Trading and Profits around Recommendation Revision Dates

45 Pages Posted: 4 Dec 2007 Last revised: 5 Jun 2014

See all articles by Anders Anderson

Anders Anderson

Swedish House of Finance

Jose Vicente Martinez

University of Connecticut

Multiple version iconThere are 2 versions of this paper

Date Written: June 4, 2014


We examine the extent to which brokers generate profits for their customers by issuing stock recommendations, and whether these profits can explain the elevated trading volumes around the time they are issued. Using a comprehensive data set of brokers' daily transactions on the Stockholm Stock Exchange over a ten-year period, we show that most of the profits and trading volumes generated by recommendations can be attributed to upgrades to the shares of large firms. A large fraction of the profits comes from transactions done before the recorded recommendation date, suggesting information leakages, tipping or postdated recommendations. It is "uninformed" brokers, i.e. those without their own analyst coverage of the recommended stock, that stand on the other side of the recommendation-motivated trades. Our results provide empirical evidence for the "Quid Pro Quo model" of equity research, whereby brokers selectively disseminate research to customers who in turn pay for investment advice through trading commissions.

Keywords: Stock recommendations, Performance evaluation, Information leakages

JEL Classification: G14, G24, J44

Suggested Citation

Anderson, Anders and Martinez, Jose Vicente, Brokerage-Firm Trading and Profits around Recommendation Revision Dates (June 4, 2014). 22nd Australasian Finance and Banking Conference 2009, Available at SSRN: or

Anders Anderson (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm

Jose Vicente Martinez

University of Connecticut ( email )

2100 Hillside Road, Unit 1041
Storrs, CT 06269
United States

HOME PAGE: http://

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