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

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  • Hyoseok David Hwang

    (Department of Accounting and Finance, University of Wisconsin - Eau Claire, USA)

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.

Suggested Citation

  • Hyoseok David Hwang, 2024. "Informed Trading of Sell-Side Analysts: Evidence from Class Action Lawsuits," Journal of Economic Analysis, Anser Press, vol. 3(3), pages 86-105, September.
    • Handle: RePEc:bba:j00001:v:3:y:2024:i:3:p:86-105:d:217
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    References listed on IDEAS

    as
    1. Chan, Kin Wai & Chang, Charles & Wang, Albert, 2009. "Put your money where your mouth is: Do financial firms follow their own recommendations?," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 1095-1112, August.
    2. Massa, Massimo & Rehman, Zahid, 2008. "Information flows within financial conglomerates: Evidence from the banks-mutual funds relation," Journal of Financial Economics, Elsevier, vol. 89(2), pages 288-306, August.
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