Sell-side Analyst Recommendation Revisions and Hedge Fund Trading before and after Regulation Fair Disclosure

Financial Review, forthcoming

52 Pages Posted: 27 Jul 2020 Last revised: 29 Apr 2021

See all articles by Mustafa Onur Caglayan

Mustafa Onur Caglayan

Florida International University

Umut Celiker

Cleveland State University - Monte Ahuja College of Business

Edward R. Lawrence

Florida International University (FIU) - Department of Finance

Date Written: April 29, 2021

Abstract

We examine institutional trading in relation to changes in consensus recommendations over time. We find that pre-Reg FD’s positive contemporaneous relation between hedge fund trading and change in consensus becomes negative after Reg FD, but the positive relation between non-hedge fund trading and change in consensus continues even after Reg FD. Furthermore, during post-Reg FD, while the performance of hedge funds’ trades that contradict with analysts improve, non-hedge funds’ trades that agree with analysts significantly deteriorate. Our evidence suggests that hedge funds have better information processing skill and are more cognizant about the role of selective information in analyst recommendations.

Keywords: analyst recommendations, institutional demand, Regulation FD, hedge funds

JEL Classification: G10, G11, C13

Suggested Citation

Caglayan, Mustafa Onur and Celiker, Umut and Lawrence, Edward R., Sell-side Analyst Recommendation Revisions and Hedge Fund Trading before and after Regulation Fair Disclosure (April 29, 2021). Financial Review, forthcoming, Available at SSRN: https://ssrn.com/abstract=3625746 or http://dx.doi.org/10.2139/ssrn.3625746

Mustafa Onur Caglayan (Contact Author)

Florida International University ( email )

College of Business
11200 S.W. 8th St, Ryder Building 223B
Miami, FL 33199
United States
(305) 348-8430 (Phone)

HOME PAGE: http://https://business.fiu.edu/faculty/expert-guides.cfm?FlagDirectory=Display&EMP=caglayanm

Umut Celiker

Cleveland State University - Monte Ahuja College of Business ( email )

1860 E 18th St #420
Cleveland, OH 44114
United States

Edward R. Lawrence

Florida International University (FIU) - Department of Finance ( email )

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

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