Asset Management and Affiliated Analysts' Forecasts

Posted: 29 Jun 2004

See all articles by Paul J. Irvine

Paul J. Irvine

Neeley School of Business

Paul J. Simko

University of Virginia - Darden School of Business

Siva Nathan

Georgia State University

Abstract

The interaction between the various departments of a full-service brokerage firm can have positive effects. An asset management department operates the firm's mutual funds and has a need for high-quality information. Thus, the firm's sell-side analysts in the research department are motivated to gather information about particular securities and to use the asset management department as an additional information source. The outcome can be to raise the quality of sell-side analysts' earnings forecasts. In the study reported here, affiliated analysts' earnings forecasts for a security became significantly more accurate as the fund family's percentage ownership of that security increased. Also, the study found a significant positive relationship between the accuracy of an affiliated analyst before the new investment and the percentage of the company's shares acquired by that fund family. The implication is that fund families make the largest purchases of stocks for which their affiliated analysts provided the most accurate forecasts ex ante. These results have implications for investors who are using analysts' earnings forecasts.

Keywords: Investment Industry: Structure, Organization, and Demographics; Equity Investments: Research Sources

Suggested Citation

Irvine, Paul J. and Simko, Paul and Nathan, Siva, Asset Management and Affiliated Analysts' Forecasts. Financial Analysts Journal, Vol. 60, No. 3, pp. 67-78, May/June 2004. Available at SSRN: https://ssrn.com/abstract=559155

Paul J. Irvine (Contact Author)

Neeley School of Business ( email )

Fort Worth, TX 76129
United States

Paul Simko

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-1391 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/simko.htm

Siva Nathan

Georgia State University ( email )

P.O. Box 4050
Atlanta, GA 30302-4050
United States
404-413-7225 (Phone)

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