Do Affiliated Analysts Mean What They Say?

Financial Management, Forthcoming

39 Pages Posted: 17 Dec 2006


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 1994-2005 time period, Buy or Hold recommendations from affiliated analysts underperform stocks recommended by Independent analysts. On the other hand, shorting their Sells earns significant abnormal returns. Announcement period returns suggest that the market over-reacts to Buys from affiliated analysts, but under-reacts to their Holds or Sells. Further analysis indicates that affiliated analyst recommendations are viewed as more credible following recent regulatory reforms.

Keywords: stock recommendations, conflict of interest, independent analysts

JEL Classification: G14, G24, G28

Suggested Citation

Cliff, Michael T., Do Affiliated Analysts Mean What They Say?. Financial Management, Forthcoming, Available at SSRN:

Michael T. Cliff (Contact Author)

Analysis Group ( email )

800 17th St, N.W.
Suite 400
Washington, DC 20006
United States
(202) 530-2010 (Phone)

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