Institutional underperformance: Should managers listen to the sell-side before trading?

Jeffrey Hobbs (), Vivek Singh () and Madhumita Chakraborty ()
Additional contact information
Jeffrey Hobbs: Appalachian State University
Vivek Singh: University of Michigan, Dearborn
Madhumita Chakraborty: Indian Institute of Management, Lucknow

Review of Quantitative Finance and Accounting, 2021, vol. 57, issue 1, No 12, 389-410

Abstract: Abstract This study examines the performance of institutional trades in the context of recent analyst recommendation changes. We report several findings. First, institutional trades depend little on sell-side activity; they go against recent recommendation changes about as often as with them. Second, abnormal returns to institutional trading are negative, a finding consistent with the previous literature. Third, returns are most harmful when trades go against recent analyst recommendation changes. Fourth, institutional investment returns are still negative, but much less so, for trades that occur in quarters following no change in the consensus recommendation, yet are significantly positive for trades in accordance with previous recommendation changes. The difference in return between trades that agree with and trades that disagree with previous recommendation changes is 4–5.5% in the next quarter. Our results strongly suggest that institutional managers could increase their returns by merely following sell-side analysts' advice more often.

Keywords: Buy-side trading; Institutional investors; Market efficiency; Analyst recommendations (search for similar items in EconPapers)
JEL-codes: G11 G14 G20 G23 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s11156-020-00948-z Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:57:y:2021:i:1:d:10.1007_s11156-020-00948-z

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-020-00948-z

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().