Put Your Money Where Your Mouth is: Do Financial Firms Follow Their Own Recommendations?
36 Pages Posted: 14 Feb 2005
We explore how financial firms trade on in-house, US equity recommendations. We match the quarterly trades of financial firms with their own recommendations and document their trading patterns before, in the same quarter as, and after issuing recommendations. We find that net trade is more positive around upgrades than downgrades for all periods, and these relations are particularly significant in the quarter of and quarter immediately after the recommendation change. Contrary to public criticism of financial firms, these empirical relations suggest that financial firms actually do "put their money where their mouths are."
Keywords: Analyst, recommendations
JEL Classification: G14, G20
Suggested Citation: Suggested Citation