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The Speed of Information and the Sell-Side Research Industry

Published online by Cambridge University Press:  09 August 2019

Daniel Bradley ,
Jonathan Clarke  and
Linghang Zeng
Daniel Bradley*
Affiliation:
Bradley, danbradley@usf.edu, University of South Florida Department of Finance
Jonathan Clarke
Affiliation:
Clarke, jonathan.clarke@scheller.gatech.edu, Georgia Institute of Technology Scheller College of Business
Linghang Zeng
Affiliation:
Zeng, lzeng@babson.edu, Babson College
*
Bradley (corresponding author) danbradley@usf.edu
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Abstract

Between 2009 and 2013, the Fly on the Wall (FLY) leaked 58% of recommendation revisions with a median delay of 27 minutes relative to the IBES announcement time. We show that FLY improves price discovery, but leaked recommendations hamper brokers’ ability to offer price improvement on trades routed through them. Three major brokers sued FLY; using key court dates, we show significant wealth and real effects to the brokerage industry. Overall, the speed with which analyst recommendations are disseminated has led to more rapid price discovery at the expense of a decline in the scope of the sell-side research industry.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 5 , August 2020 , pp. 1467 - 1490
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019

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Footnotes

We thank Jennifer Conrad (the editor), Laura Field, Bill Francis, Jillian Grennan (the referee), Paul Irvine (discussant), Russell Jame, Paul Koch, Roger Loh, Jeffrey Pontiff, Thomas Shohfi (discussant), Josh White, Jared Williams, Fei Xie, and seminar participants at the 2017 SFS Cavalcade, 2017 FMA European Conference, Florida International University, Georgia Institute of Technology, Rensselaer Polytechnic Institute, Seoul National University, and the University of Delaware for helpful discussions and comments. This article is derived in part from Zeng’s dissertation. The authors are solely responsible for all errors.

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