Trade Generation, Reputation, and Sell‐Side Analysts

Andrew R. Jackson

Journal of Finance, 2005, vol. 60, issue 2, 673-717

Abstract: This paper examines the trade‐generation and reputation‐building incentives facing sell‐side analysts. Using a unique data set I demonstrate that optimistic analysts generate more trade for their brokerage firms, as do high reputation analysts. I also find that accurate analysts generate higher reputations. The analyst therefore faces a conflict between telling the truth to build her reputation versus misleading investors via optimistic forecasts to generate short‐term increases in trading commissions. In equilibrium I show forecast optimism can exist, even when investment‐banking affiliations are removed. The conclusions may have important policy implications given recent changes in the institutional structure of the brokerage industry.

Date: 2005
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https://doi.org/10.1111/j.1540-6261.2005.00743.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:60:y:2005:i:2:p:673-717

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