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ARTICLE · 31 OCTOBER 2018

Analysts' Stock Ownership And Recommendations

Mayer Brown
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The study and conclusions may offer valuable information to regulators considering the framework applicable to research coverage.

United StatesFinance and Banking
Anna T. Pinedo
Anna T. Pinedo
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In a recent paper, authors Jesse Chan, Steve Lin, Yong Yu, and Wuyang Zhao review the ways in which owning stock in covered companies affects recommendations by analysts.  The paper is based on a review of research reports from the period between 2003 and 2012 from 74 firms. They note that, despite concerns voiced about potential conflicts of interest, it is still fairly common for analysts to own stock in covered companies.  Over the study period, however, the frequency of ownership of stock in covered companies declined significantly.  The authors believe that this may be attributed to investment banking firms adopting prohibitions on stock ownership.  The analysts that own stock tend to be more experienced, have higher prior-forecast frequency and accuracy and tend to work at smaller firms that have no underwriting relationship with the covered companies.  The authors find that stock ownership tends to be associated with more effort undertaken in connection with the

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