Do Independent Analysts Provide Superior Stock Recommendations?

48 Pages Posted: 8 Mar 2005

Date Written: December 30, 2004


Many investors were upset with the losses they experienced by following the recommendations of stock analysts during the recent market downturn. Allegations that these recommendations were often tainted by investment banking relationships fueled their anger. This study examines the investment performance of stock recommendations made by analysts employed by lead underwriters as compared to analysts independent of investment banking. The results indicate that during the 1994-2003 time period, affiliated analysts offered inferior investment advice for all recommendation categories except Sell. The paper then examines possible causes and finds that investment banking conflict of interest is a more complete explanation than a selection bias.

Keywords: Stock recommendations, analysts, banking conflicts

JEL Classification: G14, G24, G28

Suggested Citation

Cliff, Michael T., Do Independent Analysts Provide Superior Stock Recommendations? (December 30, 2004). Available at SSRN: or

Michael T. Cliff (Contact Author)

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