Market Structure, Informed Trading, and Analysts' Recommendations

Journal of Financial and Quantitative Analysis, December 1997

Posted: 9 Jan 1998

See all articles by Myron B. Slovin

Myron B. Slovin

Louisiana State University, Baton Rouge - Department of Finance; HEC Paris

Sok Tae Kim

Dong Suh Securities Co. Ltd.

Ji-Chai Lin

Hong Kong PolyU

Abstract

We examine stock price behavior in response to initial coverage, buy recommendations that are pre-released to important clients before the stock market opens, and find a strong positive valuation effect at the open. On average, it takes five minutes of trading for NYSE/AMEX stocks and 15 minutes for NASDAQ stocks to reflect the private information contained in these analyst recommendations, so when informational asymmetry is high, the centralized call market is more efficient than a competitive, but fragmented dealer market. Public news release leaves share prices unaltered. Overall, competition among informed traders causes private information to be rapidly incorporated into stock prices.

JEL Classification: G12, G14

Suggested Citation

Slovin, Myron B. and Kim, Sok Tae and Lin, Ji-Chai, Market Structure, Informed Trading, and Analysts' Recommendations. Journal of Financial and Quantitative Analysis, December 1997, Available at SSRN: https://ssrn.com/abstract=45218

Myron B. Slovin (Contact Author)

Louisiana State University, Baton Rouge - Department of Finance ( email )

2163 CEBA
Baton Rouge, LA 70803
United States
480-820-5949 (Phone)

HEC Paris ( email )

France
33146476045 (Phone)

Sok Tae Kim

Dong Suh Securities Co. Ltd.

Seoul 150-010
Korea

Ji-Chai Lin

Hong Kong PolyU ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

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