Are sell-side analysts reluctant to go against the investment views of their hedge fund clients? We show that analysts tend to upgrade stocks recently bought and downgrade stocks recently sold by hedge funds. Relative to other buy and strong buy recommendations, similar recommendations on stocks predominantly held by hedge funds parlay into poorer three-month and six-month stock returns. Hedge funds concurrently offload their stock holdings when analysts issue flattering reports. In line with an agency based explanation, our results are more pronounced for important brokerage clients such as high dollar turnover hedge funds and hedge funds who are prime brokerage clients of the analyst’s investment bank.
analysts, hedge funds, agency, conflicts of interests
Accounting | Finance and Financial Management | Portfolio and Security Analysis
Financial Performance Analysis; Finance
SMU School of Accountancy Research Paper No. 2013-03
City or Country
CHUNG, Sung Gon and TEO, Melvyn.
Hedge Funds and Analyst Conflict of Interest. (2012). 1-44. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/996
Copyright Owner and License
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.