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Sell Side School Ties

39 Pages Posted: 20 Feb 2008 Last revised: 8 Apr 2016

Lauren Cohen

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

Andrea Frazzini

AQR Capital Management, LLC

Christopher J. Malloy

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

Multiple version iconThere are 2 versions of this paper

Date Written: November 29, 2009

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 6.60% 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 9.36% 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.

The appendix to "Sell Side School Ties" may be found at http://ssrn.com/abstract=2758824.

Keywords: Social networks, connections, analysts, directors

JEL Classification: G10, G11, G14

Suggested Citation

Cohen, Lauren and Frazzini, Andrea and Malloy, Christopher J., Sell Side School Ties (November 29, 2009). Harvard Business School Finance Working Paper No. 08-074. Available at SSRN: https://ssrn.com/abstract=1095808 or http://dx.doi.org/10.2139/ssrn.1095808

Lauren Cohen

Harvard Business School ( email )

Rock Center 321
Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/lcohen

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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 (Contact Author)

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

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