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Stock recommendation of an analyst who trades on own account
Author(s) -
Ozerturk Saltuk
Publication year - 2007
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.0741-6261.2007.00111.x
Subject(s) - portfolio , incentive , stock (firearms) , endowment , business , position (finance) , private information retrieval , financial economics , microeconomics , economics , finance , computer science , mechanical engineering , philosophy , computer security , epistemology , engineering
This article analyzes the provision of information acquisition and truthful reporting incentives to a financial analyst who can privately trade on own account. In a binary message and state space, I show that the analyst's reward scheme essentially provides him with a portfolio endowment traded in the market. Regardless of the true signal, the analyst issues the report that corresponds to the portfolio endowment with maximum market value, given security prices. The analyst's information acquisition incentive is driven only by private portfolio considerations: he acquires information only if he will be holding a large enough position in the stock he covers.