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When the Payment Mode Affects the Quality of Advices. Financial Analysts, Fund Managers, and Brokerage Commissions

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  • Sébastien Galanti

    (LEO - Laboratoire d'économie d'Orleans [2008-2011] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

Abstract

"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.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Sébastien Galanti, 2008. "When the Payment Mode Affects the Quality of Advices. Financial Analysts, Fund Managers, and Brokerage Commissions," Post-Print halshs-00224805, HAL.
    • Handle: RePEc:hal:journl:halshs-00224805
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