Security Analysis, Dealer‐Analyst Collaboration, and Market Quality: Evidence from the NASDAQ Market in the USA

27 Pages Posted: 12 Jan 2013

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Mingsheng Li

Bowling Green State University - College of Business Administration

Xin Zhao

University of International Business and Economics (UIBE)

Date Written: November/December 2012

Abstract

In this study we analyze the effect of the security analysis activities on stock market liquidity and execution quality. We show that stocks followed by financial analysts have better market liquidity and execution quality than stocks with no analyst following, and stocks followed by affiliated analysts have better market liquidity and execution quality than stocks followed by unaffiliated analysts. The superior market liquidity of stocks followed by affiliated analysts can be explained by aggressive dealer quotes from analyst‐dealer information sharing. Overall, our results suggest that public traders benefit from analyst coverage and collaboration between analysts and dealers through high liquidity and low transaction costs.

Keywords: NASDAQ, analyst following, dealers, spreads, depths, execution quality, price impact, adverse selection cost, quote aggressiveness, trading costs, SEC Rule 605

Suggested Citation

Chung, Kee H. and Li, Mingsheng and Zhao, Xin, Security Analysis, Dealer‐Analyst Collaboration, and Market Quality: Evidence from the NASDAQ Market in the USA (November/December 2012). Journal of Business Finance & Accounting, Vol. 39, Issue 9‐10, pp. 1376-1402, 2012. Available at SSRN: https://ssrn.com/abstract=2199735 or http://dx.doi.org/10.1111/j.1468-5957.2012.02305.x

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Mingsheng Li

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

Bowling Green, OH 43403
United States

Xin Zhao

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

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