Analyst Recommendations and Nasdaq Market Making Activity
I investigate the linkage between liquidity provision by Nasdaq market makers and analysts in the same firm. Using three measures of market activity, I find that Nasdaq firms are more likely to provide buy side liquidity in anticipation of upgrades in the period 1999-2000. ECN activity supports this pattern. Firm level evidence shows that 15 of 42 market makers studied engage in significant pre-recommendation activity. I estimate cumulative abnormal returns of more than 75% and profits of almost $600 million in a sample of 47 large capitalization stocks.
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- Schultz, Paul, 2003. "Who makes markets," Journal of Financial Markets, Elsevier, vol. 6(1), pages 49-72, January.
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- Bruce Mizrach & Yijie Zhang, 2000. "Should ECNs be SOES-able?," Departmental Working Papers 200010, Rutgers University, Department of Economics.
- Bruce Mizrach, 2002. "The Next Tick on Nasdaq: Does Level II Information Matter?," Departmental Working Papers 200202, Rutgers University, Department of Economics.
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