The Impact of Sell-Side Analyst Research Coverage on an Affiliated Broker's Market Share of Trading Volume

48 Pages Posted: 28 Feb 2008

See all articles by Greg Niehaus

Greg Niehaus

University of South Carolina - Darla Moore School of Business

Donghang Zhang

University of South Carolina

Date Written: February 2008

Abstract

Using NASDAQ reported individual stock level trading volume, we find that analyst research coverage on a stock increases an affiliated broker's market share of trading volume in that stock by 0.8 percent, on average, which corresponds to an additional annual volume of about one million shares in an average stock. Optimistic recommendations increase market share by an additional 0.4 percent, on average, which suggests that analysts have an incentive to issue upwardly biased recommendations. However, affiliated brokers receive more trading volume when recommendations are provided by analysts with better reputations and when analysts report new information to the market via coverage upgrades and downgrades. Furthermore, as the length of time during which an analyst maintains the same recommendation on a stock increases, the impact of the analyst's research coverage on the affiliated broker's market share of volume in the stock declines. The latter findings indicate that sell-side institutions are rewarded for high quality research services and for providing new information to the market.

Keywords: Analysts, Trading Volume, NASDAQ

JEL Classification: G24

Suggested Citation

Niehaus, Greg and Zhang, Donghang, The Impact of Sell-Side Analyst Research Coverage on an Affiliated Broker's Market Share of Trading Volume (February 2008). Available at SSRN: https://ssrn.com/abstract=1098281 or http://dx.doi.org/10.2139/ssrn.1098281

Greg Niehaus

University of South Carolina - Darla Moore School of Business ( email )

College of Business Administration
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-7254 (Phone)
803-777-6876 (Fax)

Donghang Zhang (Contact Author)

University of South Carolina ( email )

1014 Greene Street
Darla Moore Sch
Columbia, SC SC 29208
United States
8037770242 (Phone)
29208 (Fax)

HOME PAGE: http://https://sc.edu/study/colleges_schools/moore/directory/zhang_donghang.php

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