PT  - JOURNAL ARTICLE
AU  - Klein, April
AU  - Saunders, Anthony
AU  - Wong, Yu Ting Forester
TI  - Is There a Quid Pro Quo between Hedge Funds and Sell-Side Equity Analysts?
AID  - 10.3905/jpm.2019.45.6.117
DP  - 2019 Aug 30
TA  - The Journal of Portfolio Management
PG  - 117--132
VI  - 45
IP  - 6
4099  - http://jpm.pm-research.com/content/45/6/117.short
4100  - http://jpm.pm-research.com/content/45/6/117.full
AB  - In this article, the authors posit a quid pro quo in economic benefits between sell-side equity analysts and large hedge fund managers. They show that large hedge funds opportunistically trade one to four days prior to the publication of a recommendation change, a finding consistent with flow of information from analysts to hedge funds. Next, the authors demonstrate that in return for the information provided, analysts benefit from (1) better external evaluations and (2) higher trading commissions and fees for their brokerage firm. Notably, pre-trading occurs only when the analyst issuing the recommendations has a high external evaluation and the analyst’s brokerage house is a prime broker to the hedge fund.TOPICS: Manager selection, fundamental equity analysis, portfolio construction