When the payment mode affects the quality of advices. Financial analysts, fund managers, and brokerage commissions
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"Sell-side"analysts advise fund managers with recommendations to buy or sell a stock. But being compensated with commissions proportional to the amount traded can drive the analyst to bias his advice. In a two-agent model, it is notably shown that the probability of a biased equilibrium to occur increases with commission rate, but decreases with the weight of analyst rating. Moreover, the fund manager can cross-check the recommendation with his own signal–this may represent access to an in-house"buy-side analyst". The fund manager does not necessarily follow the sell-side analyst if its own signal is precise enough . The model hence provides a theoretical rationale for recent empirical results about the independance of sell-side analysts.
Keywords: Financial Analysts; Brokerage; Stock Recommendations.; Stock Recommendations (search for similar items in EconPapers)
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Published in 2008
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Working Paper: When the Payment Mode Affects the Quality of Advices. Financial Analysts, Fund Managers, and Brokerage Commissions (2008)
Working Paper: When the payment mode affects the quality of advices. Financial analysts, fund managers, and brokerage commissions (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00464933
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