40 Pages Posted: 2 Jan 2005

See all articles by Paul J. Irvine

Paul J. Irvine

Neeley School of Business

Andy Puckett

University of Tennessee, Knoxville

Marc L. Lipson

University of Virginia - Darden School of Business

Date Written: September, 2004


This paper investigates the trading behavior of institutional investors immediately prior to the release of analysts' initial buy and strong buy recommendations. Using a proprietary database of institutional trading activity from the Plexus Group, we document abnormally high trading volume and abnormally large buying imbalances beginning five days before initial recommendations are publicly released. Furthermore, abnormal buying activity is positively related to initiation characteristics associated with greater abnormal price responses, including some that would require knowledge of the content of the report - such as the identity of the analyst and whether the recommendation is a strong buy. We confirm that institutions buying prior to the recommendation release earn positive abnormal trading profits. Taken together, our results suggest that some institutional traders receive tips regarding the contents of forthcoming analysts' reports. To the extent that brokerage firm clients who benefit from these tips are more likely to direct business to the initiating brokerage firm, tipping provides economic profits to the brokerage that can help defray the cost of analyst information gathering. Thus, while tipping benefits some traders at the expense of others, the welfare consequences of tipping are unclear.

Suggested Citation

Irvine, Paul J. and Puckett, Andy and Lipson, Marc Lars, Tipping (September, 2004). AFA 2005 Philadelphia Meetings, Available at SSRN: https://ssrn.com/abstract=642341 or http://dx.doi.org/10.2139/ssrn.642341

Paul J. Irvine (Contact Author)

Neeley School of Business ( email )

Fort Worth, TX 76129
United States

Andy Puckett

University of Tennessee, Knoxville ( email )

437 Stokely Managment Center
Knoxville, TN 37996
United States

Marc Lars Lipson

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4837 (Phone)
434-243-5021 (Fax)

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

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