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Sell‐Side Analyst Research and Reported Conflicts of Interest
Author(s) -
Arand Daniel,
Kerl Alexander G.
Publication year - 2015
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2012.00661.x
Subject(s) - optimism , business , stock (firearms) , short interest ratio , conflict of interest , investment banking , economics , investment decisions , financial economics , value (mathematics) , monetary economics , finance , behavioral economics , mechanical engineering , psychology , social psychology , paleontology , context (archaeology) , engineering , biology , machine learning , computer science
Abstract Using a unique dataset of conflicts of interest reported by a large investment bank, we examine the relationship between conflicts of interests and sell‐side analysts’ behaviour in setting target prices and stock recommendations. We demonstrate that the aggregate number of simultaneous business ties with a subject company is positively associated with optimism in target prices and recommendations. Furthermore, the results provide some indication that stocks for which conflicts of interests exist earn lower risk‐adjusted returns than unconflicted stocks. However, we find no evidence that investors discount the value of sell‐side analysts’ research with respect to the prevailing level of conflicts .