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

Yingmei Cheng, Mark H. Liu, Jun Qian

Research output: Contribution to journalArticlepeer-review

57 Scopus citations


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 languageEnglish
Pages (from-to)51-83
Number of pages33
JournalJournal of Financial and Quantitative Analysis
Issue number1
StatePublished - 2006

Bibliographical note

Funding Information:
∗Cheng,, Florida State University, College of Business, Tallahassee, FL 32306; Liu,, University of Kentucky, School of Management, Lexington, KY 40506; Qian,, 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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