Informed Trading of Sell-Side Analysts: Evidence from Class Action Lawsuits

Hyoseok David Hwang
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Hyoseok David Hwang: Department of Accounting and Finance, University of Wisconsin - Eau Claire, USA

Journal of Economic Analysis, 2024, vol. 3, issue 3, 86-105

Abstract: This paper examines whether sell-side analyst-affiliated investors trade stocks before their analysts release material information. Using class action lawsuits, I explore the pre-lawsuit periods and investigate how potentially informed analysts trade their covered firms. The event study finds that analyst-affiliated investors reduce their stockholdings of firms prior to their own analyst downgrades. The findings are more pronounced among investors employed by investment banks. The post-trading performance of analyst-affiliated investors suggests that they have superior information and front-run to maximize benefits.

Keywords: Sell-side analyst; front running; securities class action lawsuits (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:bba:j00001:v:3:y:2024:i:3:p:86-105:d:217

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