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Trade Generation, Reputation, and Sell-Side Analysts

  • ANDREW R. JACKSON
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    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. Copyright 2005 by The American Finance Association.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2005.00743.x
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    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 60 (2005)
    Issue (Month): 2 (04)
    Pages: 673-717

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    Handle: RePEc:bla:jfinan:v:60:y:2005:i:2:p:673-717
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