Buy-Side Analysts, Sell-Side Analysts, and Investment Decisions of Money Managers

We examine the role of financial analysts in forming institutional investors' investment decisions. In our model, a fund manager invests in a stock based on the optimal weighting of reports created by a biased sell-side analyst and an unbiased buy-side analyst. The manager puts a higher weight...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2006-03, Vol.41 (1), p.51-83
Main Authors: Cheng, Yingmei, Liu, Mark H., Qian, Jun
Format: Article
Language:English
Subjects:
Analysts
Analytical forecasting
Asset management
Bias
Decision making
Empirical tests
Equity
Fees
Financial analysis
Financial economics
Financial information
Financial investments
Financial research
Institutional investments
Investment
Investment decision
Investment funds
Investment strategies
Investment trusts
Investment value
JFQA 2006 Symposium on Stock Analysts
Money
Portfolio management
Term weighting
U.S.A
Uncertainty
Weight control
Weighting
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Summary:We examine the role of financial analysts in forming institutional investors' investment decisions. In our model, a fund manager invests in a stock based on the optimal weighting of reports created by a biased sell-side analyst and an unbiased buy-side analyst. The manager puts a higher weight on the buy-side analyst's report when the quality of the buyside analyst's information relative to that of the sell-side analyst increases, or when the sell-side analyst's degree of bias or uncertainty about the bias increases. Utilizing a unique dataset of U.S. equity funds, we find evidence supporting our model predictions on how fund managers weigh buy-side research relative to sell-side and independent research.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109000002428