Trade Generation, Reputation and Sell-Side Analysts

51 Pages Posted: 29 Aug 2003

See all articles by Andrew Jackson

Andrew Jackson

Vinva Investment Management; London Business School

Date Written: June 6, 2003


This paper examines the trade-generation and reputation-building incentives facing sell-side analysts. I demonstrate empirically that optimistic analysts generate more trade for their brokerage firms, as do high reputation analysts. Thus the analyst faces a conflict between telling the truth to build her reputation, and misleading investors via optimistic forecasts to generate short-term increases in commission. When the investor is unsure of the analyst's type, and when short sales constraints are present, I show using a simple model that equilibrium forecast optimism can exist, even when investment-banking affiliations are removed. Further tests support the model's analysis of the information game. The conclusions may have important policy implications for the recently proposed changes to the institutional structure of the broking industry.

Keywords: trade generation, sell-side analysts, reputation

JEL Classification: G29, L14, G24

Suggested Citation

Jackson, Andrew, Trade Generation, Reputation and Sell-Side Analysts (June 6, 2003). Available at SSRN: or

Andrew Jackson (Contact Author)

Vinva Investment Management ( email )

L13 10 Bridge Street
Sydney, 2000


London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

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