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Security Analysis, Dealer‐Analyst Collaboration, and Market Quality: Evidence from the NASDAQ Market in the USA
Author(s) -
Chung Kee H.,
Li Mingsheng,
Zhao Xin
Publication year - 2012
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2012.02305.x
Subject(s) - market liquidity , business , liquidity crisis , stock market , transaction cost , market maker , stock (firearms) , quality (philosophy) , database transaction , financial system , finance , monetary economics , financial economics , economics , mechanical engineering , paleontology , philosophy , horse , epistemology , computer science , engineering , biology , programming language
In this study we analyze the effect of the security analysis activities on stock market liquidity and execution quality. We show that stocks followed by financial analysts have better market liquidity and execution quality than stocks with no analyst following, and stocks followed by affiliated analysts have better market liquidity and execution quality than stocks followed by unaffiliated analysts. The superior market liquidity of stocks followed by affiliated analysts can be explained by aggressive dealer quotes from analyst‐dealer information sharing. Overall, our results suggest that public traders benefit from analyst coverage and collaboration between analysts and dealers through high liquidity and low transaction costs.