Do Sell-Side Analysts Say “Buy” While Whispering “Sell”?

Abstract

We study how equity analysts disclose different information to the public versus to fund managers to whom they are connected. We examine say-buy/whisper-sell behavior wherein analysts issue optimistic recommendations to attract retail investors while providing more accurate information to fund managers in private, so that fund managers sell the recommended stocks. We measure favor trading using fund managers’ votes for analysts in a Chinese “star analyst” competition. Managers are more likely to vote for analysts who exhibit greater “say-buy/whisper-sell” behavior toward these managers. This suggests that analysts reduce the accuracy of their public recommendations, thereby maintaining the value of their private advice to funds. Our findings help explain several empirical puzzles about analyst public recommendations.

Keywords: Analyst Recommendations; Mutual Fund; Information Transmission

JEL Classification: G00, G23, L15