Analyst Recommendations and Nasdaq Market Making Activity

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: I investigate the linkage between liquidity provision by Nasdaq market makers and analysts in the same firm. Using three measures of market activity, I find that Nasdaq firms are more likely to provide buy side liquidity in anticipation of upgrades in the period 1999-2000. ECN activity supports this pattern. Firm level evidence shows that 15 of 42 market makers studied engage in significant pre-recommendation activity. I estimate cumulative abnormal returns of more than 75% and profits of almost $600 million in a sample of 47 large capitalization stocks.

Keywords: Nasdaq; analyst; market maker (search for similar items in EconPapers)
JEL-codes: G14 G24 (search for similar items in EconPapers)
Date: 2003-08-10
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