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Buy-Side Analysts, Sell-Side Analysts, and Investment Decisions of Money Managers

Published online by Cambridge University Press:  06 April 2009

Yingmei Cheng ,
Mark H. Liu  and
Jun Qian
Yingmei Cheng
Affiliation:
ycheng@cob.fsu.edu, Florida State University, College of Business, Tallahassee, FL 32306
Mark H. Liu
Affiliation:
hlliu2@uky.edu, University of Kentucky, School of Management, Lexington, KY 40506
Jun Qian
Affiliation:
qianju@mail.bc.edu, Boston College, Carroll School of Management, Chestnut Hill, MA02467.
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Abstract

We examine the role of financial analysts in forming institutional investors' investment decisions. In our model, a fund manager invests in a stock based on the optimal weighting of reports created by a biased sell-side analyst and an unbiased buy-side analyst. The manager puts a higher weight on the buy-side analyst's report when the quality of the buyside analyst's information relative to that of the sell-side analyst increases, or when the sell-side analyst's degree of bias or uncertainty about the bias increases. Utilizing a unique dataset of U.S. equity funds, we find evidence supporting our model predictions on how fund managers weigh buy-side research relative to sell-side and independent research.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 41 , Issue 1 , March 2006 , pp. 51 - 83
Copyright
Copyright © School of Business Administration, University of Washington 2006

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