Analysts’ Stock Ownership and Stock Recommendations

56 Pages Posted: 22 Aug 2018

See all articles by Jesse Chan

Jesse Chan

University of Texas at Austin

Steve W. J. Lin

Florida International University (FIU) - School of Accounting

Yong Yu

University of Texas at Austin

Wuyang Zhao

University of Texas at Austin

Date Written: August 13, 2018

Abstract

Using hand-collected information, we find that analysts who own stock in a company they follow make more informative recommendations and exert more effort in covering the company. However, we also find that analysts with stock ownership issue more optimistic target price forecasts. These findings suggest that analysts’ stock ownership enhances the credibility of their recommendations by conveying their superior information, but also induces analysts to bias upwards their target price forecasts. Surprisingly, we find that 56% of analysts owning stock terminate their ownership while having a buy recommendation outstanding, suggesting a potentially widespread violation of the regulations on analysts’ research.

Keywords: Analyst, Stock Ownership, Stock Recommendation, Conflict of Interest, Credibility

JEL Classification: G14, G24, G28, M41

Suggested Citation

Chan, Jesse and Lin, Steve W. J. and Yu, Yong and Zhao, Wuyang, Analysts’ Stock Ownership and Stock Recommendations (August 13, 2018). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=3230158

Jesse Chan

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Steve W. J. Lin

Florida International University (FIU) - School of Accounting ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Yong Yu (Contact Author)

University of Texas at Austin ( email )

1 University Station B6400
Austin, TX 78712
United States
(512)471-6714 (Phone)
(512)471-3904 (Fax)

Wuyang Zhao

University of Texas at Austin ( email )

Austin, TX 78712
United States
5128262698 (Phone)

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