Brokerage

5 Results

 

The Use of Broker Votes to Reward Brokerage Firms’ and Their Analysts’ Research Activities

Broker votes are one of the most pervasive yet least understood reporting practices on Wall Street. The votes are essentially ratings of the value of brokers' investment research services. These ratings are produced by institutional investors (the "buy side") and solicited by broker dealers (the "sell side"). Little research to date, however, has examined the determinants of broker votes, their consequences, and their economic function. In this paper the authors use data gathered from a mid-sized investment bank for the years 2004 to 2007 in order to study how broker votes are related to institutional investors' commission payments and analysts' client services and compensation. Results overall suggest that broker votes help to facilitate implicit contractual relationships between sell-side brokers, their affiliated analysts, and their buy-side clients. Broker votes are neither mere popularity contests nor a simple reflection of trading in analysts' covered stocks. Instead, they appear to be a key component of the investment research industry's contracting technology, acting as the nexus for a set of relationships between sell-side brokers, their affiliated analysts, and their buy-side clients. The findings thus deepen our understanding of how information is exchanged on Wall Street and help to explain why the practice of collecting and aggregating client votes—a costly internal reporting procedure—has stood the test of time and has been replicated across countless sell-side research departments. Read More

The Gap in the U.S. Treasury Recommendations

U.S. Treasury recommendations for strengthening the regulation of the financial system are a good start but fall short, says Harvard Business School professor emeritus Dwight B. Crane. Here's his suggestion for bringing regulation into the 21st century. Read More

New Challenges in Leading Professional Services

Professional service firms are being challenged as never before—by clients, associates, and the competition, just for starters. But old-style PSF leaders are not equipped to respond, says Harvard Business School professor Thomas J. DeLong. He discusses his new book When Professionals Have to Lead. Plus: Book excerpt. Read More

The Bias of Wall Street Analysts

Historically, stock analysts’ recommendations have been swayed by business relationships between the analyst’s employer and the target company, says Professor Mark Bradshaw. Have recent SEC reforms helped? Read More

Analyst Disagreement, Forecast Bias and Stock Returns

It is well documented that financial analysts' opinions are reflected in stock prices. The problem: Analysts often operate under incentives that are inconsistent with telling the truth. Retail investors, who tend to be less sophisticated, may fail to make proper adjustments for the more nuanced of the resulting biases, some of which might be reflected in market prices. To study the scope of market efficiency, Scherbina studied analysts' incentives, resulting forecast biases, and their potential impact on market prices. Read More