Analyst Reputation, Dealer Affiliation and Market Making

Posted: 11 Sep 2009

See all articles by Mingsheng Li

Mingsheng Li

Bowling Green State University - College of Business Administration

Zhao Xin

Independent

Date Written: April 6, 2009

Abstract

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

Li, Mingsheng and Xin, Zhao, Analyst Reputation, Dealer Affiliation and Market Making (April 6, 2009). Journal of Financial Research, Vol. 31, No. 4, 2008. Available at SSRN: https://ssrn.com/abstract=1373905

Mingsheng Li (Contact Author)

Bowling Green State University - College of Business Administration ( email )

Bowling Green, OH 43403
United States

Zhao Xin

Independent ( email )

No Address Available
United States

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