Buy-Side Analysts, Sell-Side Analysts, and Investment Decisions of Money Managers

39 Pages Posted: 26 Apr 2005

See all articles by Yingmei Cheng

Yingmei Cheng

Florida State University - College of Business

Mark H. Liu

University of Kentucky - Gatton College of Business and Economics

Jun Qian

Fanhai International School of Finance, Fudan University; University of Pennsylvania - Wharton Financial Institutions Center

Multiple version iconThere are 2 versions of this paper

Date Written: February 2005

Abstract

We examine the role of financial analysts in forming institutional investors' investment decisions. We model how a fund manager invests in a stock based on reports produced by a biased sell-side analyst and an unbiased buy-side analyst. She weighs the two reports in her decision making, and puts a higher weight on the buy-side analyst's report when the quality of the buy-side analyst's information relative to that of the sell-side analyst increases, or when the sell-side analyst's degree of bias or the uncertainty in the bias increases. Utilizing a unique data set of U.S. equity funds with description of fund organizational structure and research sources, we find empirical evidence supporting our model predictions on how fund managers weigh buy-side research relative to sell-side and independent research.

Keywords: Buy-side analyst, sell-side analyst, bias, earnings forecast, excess return.

JEL Classification: G29, D82, G10

Suggested Citation

Cheng, Yingmei and Liu, Mark H. and Qian, Jun, Buy-Side Analysts, Sell-Side Analysts, and Investment Decisions of Money Managers (February 2005). Available at SSRN: https://ssrn.com/abstract=706181 or http://dx.doi.org/10.2139/ssrn.706181

Yingmei Cheng

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States
850-644-7869 (Phone)

Mark H. Liu

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-9842 (Phone)
859-257-9688 (Fax)

Jun Qian (Contact Author)

Fanhai International School of Finance, Fudan University ( email )

Shanghai
China
86-21-63895501 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.fisf.fudan.edu.cn/show-65-69.html

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States

HOME PAGE: http://fic.wharton.upenn.edu/fic/

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