RT Journal Article
SR Electronic
T1 Is There a Quid Pro Quo between Hedge Funds and Sell-Side Equity Analysts?
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 117
OP 132
DO 10.3905/jpm.2019.45.6.117
VO 45
IS 6
A1 April Klein
A1 Anthony Saunders
A1 Yu Ting Forester Wong
YR 2019
UL https://pm-research.com/content/45/6/117.abstract
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