Buy-side analysts, sell-side analysts, and investment decisions of money managers

Yingmei Cheng; Mark H. Liu; Jun Qian

doi:10.1017/S0022109000002428

Buy-side analysts, sell-side analysts, and investment decisions of money managers

Yingmei Cheng, Mark H. Liu, Jun Qian

Finance and Quantitative Methods

Research output: Contribution to journal › Article › peer-review

51 Scopus citations

Abstract

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 buy-side 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.

Original language	English
Pages (from-to)	51-83
Number of pages	33
Journal	Journal of Financial and Quantitative Analysis
Volume	41
Issue number	1
DOIs	https://doi.org/10.1017/S0022109000002428
State	Published - 2006

Bibliographical note

Funding Information:
∗Cheng, ycheng@cob.fsu.edu, Florida State University, College of Business, Tallahassee, FL 32306; Liu, hlliu2@uky.edu, University of Kentucky, School of Management, Lexington, KY 40506; Qian, qianju@mail.bc.edu, Boston College, Carroll School of Management, Chestnut Hill, MA 02467. We appreciate helpful comments from Franklin Allen, James Ang, Gary Benesh, Hendrik Bessem-binder (the editor), Jim Booth, Tom Chemmanur, Wayne Ferson, Amar Gande, Yaniv Grinstein, Harrison Hong (the referee), Edie Hotchkiss, S. P. Kothari, Xi Li, Don Nast, Phil Strahan, Xiaoyan Zhang, seminar/session participants at Hong Kong University of Science and Technology, the Utah Winter Finance Conference, and meetings of the Eastern Finance Association, the European Finance Association, the Financial Management Association, and the Western Finance Association. We acknowledge financial support from Boston College and Florida State University, and the data provided by IBES and Thomson Financial/Nelson Information and, in particular, Eric Muhlfeld. We are responsible for all remaining errors.

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

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abstract = "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 buy-side 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.",

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Buy-side analysts, sell-side analysts, and investment decisions of money managers

Abstract

Bibliographical note

ASJC Scopus subject areas

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