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Buy-side trades and sell-side recommendations: Interactions and information content

Author

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  • Busse, Jeffrey A.
  • Clifton Green, T.
  • Jegadeesh, Narasimhan

Abstract

We examine the performance of buy-side institutional investor trades and sell-side brokerage analyst stock recommendations, as well as their interactions. Buy-side trades follow sell-side analyst recommendations but not the other way around. While buy-side purchases significantly outperform their sales, the difference in performance is largely concentrated on the day of the transaction. Following recommendation changes, buy-side trades in the same direction as the recommendation change earn the same returns as trades in the opposite direction. Therefore, institutional investors do not exhibit special skills in discerning the quality of recommendations.

Suggested Citation

  • Busse, Jeffrey A. & Clifton Green, T. & Jegadeesh, Narasimhan, 2012. "Buy-side trades and sell-side recommendations: Interactions and information content," Journal of Financial Markets, Elsevier, vol. 15(2), pages 207-232.
  • Handle: RePEc:eee:finmar:v:15:y:2012:i:2:p:207-232 DOI: 10.1016/j.finmar.2011.08.001
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    References listed on IDEAS

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    Cited by:

    1. Gallefoss, Kristoffer & Hansen, Helge Hoff & Haukaas, Eirik Solli & Molnár, Peter, 2015. "What daily data can tell us about mutual funds: Evidence from Norway," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 117-129.
    2. Frey, Stefan & Herbst, Patrick, 2014. "The influence of buy-side analysts on mutual fund trading," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 442-458.
    3. repec:eee:aosoci:v:61:y:2017:i:c:p:53-67 is not listed on IDEAS
    4. Hendershott, Terrence & Livdan, Dmitry & Schürhoff, Norman, 2015. "Are institutions informed about news?," Journal of Financial Economics, Elsevier, vol. 117(2), pages 249-287.
    5. Lynch, Andrew & Puckett, Andy & Yan, Xuemin (Sterling), 2014. "Institutions and the turn-of-the-year effect: Evidence from actual institutional trades," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 56-68.
    6. Bernile, Gennaro & Hu, Jianfeng & Tang, Yuehua, 2016. "Can information be locked up? Informed trading ahead of macro-news announcements," Journal of Financial Economics, Elsevier, vol. 121(3), pages 496-520.
    7. Yamamoto, Ryuichi & Hirata, Hideaki, 2013. "Strategy switching in the Japanese stock market," Journal of Economic Dynamics and Control, Elsevier, vol. 37(10), pages 2010-2022.
    8. Hobbs, Jeffrey & Singh, Vivek, 2015. "A comparison of buy-side and sell-side analysts," Review of Financial Economics, Elsevier, vol. 24(C), pages 42-51.
    9. repec:eee:finmar:v:36:y:2017:i:c:p:1-16 is not listed on IDEAS
    10. Grant, Andrew & Jarnecic, Elvis & Su, Mark, 2015. "Asymmetric effects of sell-side analyst optimism and broker market share by clientele," Journal of Financial Markets, Elsevier, vol. 24(C), pages 49-65.

    More about this item

    Keywords

    Analyst recommendations; Institutional trading;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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