Analyst Reputation, Dealer Affiliation and Market Making
Posted: 11 Sep 2009
Date Written: April 6, 2009
We investigate the effects of analysts' affiliation and reputation on dealers' market making activities. We find that, for a given stock, dealers who have affiliated analysts covering the stock quote and trade more aggressively than those who do not have any affiliated analysts. More importantly, the reputation of affiliated analysts plays an additional role in the affiliated dealer's quote and trade behavior. Dealers with affiliated star-analysts post more aggressive quotes and have larger market shares than dealers with affiliated non-star analysts. Although dealers who post more aggressive quotes also induce star affiliated analysts to cover the stocks, the positive effect of analyst reputation on the affiliated dealers' quote aggressiveness remains significant and robust after controlling for potential endogenous and simultaneous problems.
Keywords: market making, analyst coverage, analyst reputation, quote aggressiveness
Suggested Citation: Suggested Citation