A comparison of buy-side and sell-side analysts

Jeffrey Hobbs and Vivek Singh ()

Review of Financial Economics, 2015, vol. 24, issue C, 42-51

Abstract: There is very little research on the topic of buy-side analyst performance, and that which does exist yields mixed results. We use a large sample from both the buy-side and the sell-side and report several new results. First, while the contemporaneous returns to portfolios based on sell-side recommendations are positive, the returns for buy-side analysts, proxied by changes in institutional holdings, are negative. Second, the buy-side analysts' underperformance is accentuated when they trade against sell-side analysts' recommendations. Third, abnormal returns positively relate to both the portfolio size and the portfolio turnover of buy-side analysts' institutions, suggesting that large institutions employ superior analysts and that superior analysts frequently change their recommendations. Abnormal returns are also positively related to buy-side portfolios with stocks that have higher analyst coverage, greater institutional holding, and lower earnings forecast dispersion. Fourth, there is substantial persistence in buy-side performance, but even the top decile performs poorly. These findings suggest that sell-side analysts still outperform buy-side analysts despite the severe conflicts of interest documented in the literature.

Keywords: Sell-side analysts; Buy-side analysts; Institutional investors; Analyst recommendations; Market efficiency (search for similar items in EconPapers)
JEL-codes: G11 G14 G20 G23 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:24:y:2015:i:c:p:42-51

DOI: 10.1016/j.rfe.2014.12.004

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