Dynamic Incentives for Buy-Side Analysts

A comparison of buy-side and sell-side analysts

The Stock Selection and Performance of Buy-Side Analysts

We examine the selection and performance of stocks recommended by analysts at a large investment firm relative to those of sell-side analysts during the period mid-1997 and 2004. The buy-side firm’s analysts issued less optimistic recommendations for stocks with larger market capitalizations and lower return volatility than their sell-side peers, consistent with their facing fewer conflicts of ...

Analysts, Incentives, and Exaggeration

Sell-side analysts are compensated, at least in part, by brokerage commissions. These commissions create an incentive to bias forecasts to generate trade. Thus, analysts have clear economic incentives to deceive and traders have economic incentives to detect deception. Prior analytical theories of information transmission games starkly predict that there will always be some deception (with trad...

Crowdsourcing Forecasts: competition for sell-side analysts?

Recent research has begun to question the importance of forecasts to sell-side analysts. Prior research established the co-existence of longer horizon optimism and short-term pessimism in sell-side forecasts. These factors motivate us to explore a new phenomenon – crowdsourcing, as an alternative source of forecasts. We obtain revenue and earnings forecasts from estimize, an entity which crowds...

The Distorting Incentives of Relative Performance Evaluation for Equity Analysts∗

We study the strategic behavior of equity analysts whose compensation is based on relative performance of their stock recommendations. Our model predicts that riskaverse analysts issue identical recommendations to avoid falling behind their peers. Top analyst awards, on the other hand, motivate analysts to issue bold recommendations. However, when the stock return is very volatile, the herding ...