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When the payment mode affects the quality of advices. Financial analysts, fund managers, and brokerage commissions

Sébastien Galanti 1

(2008)

"Sell-side"analysts advise fund managers with recommendations to buy or sell a stock. But being compensated with commissions proportional to the amount traded can drive the analyst to bias his advice. In a two-agent model, it is notably shown that the probability of a biased equilibrium to occur increases with commission rate, but decreases with the weight of analyst rating. Moreover, the fund manager can cross-check the recommendation with his own signal–this may represent access to an in-house"buy-side analyst". The fund manager does not necessarily follow the sell-side analyst if its own signal is precise enough . The model hence provides a theoretical rationale for recent empirical results about the independance of sell-side analysts.

1 :	Laboratoire d'économie d'Orleans (LEO)
	CNRS : UMR6221 – Université d'Orléans

Équipe de recherche : Laboratoire d'Economie d'Orléans

Discipline

:

Humanities and Social Sciences/Economy and finances

Mots-Clés : Financial Analysts – Brokerage – Stock Recommendations.

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Contributeur : Sébastien Galanti <>

Submitted on : Thursday, 18 March 2010 14:26:39

Updated on : Friday, 19 March 2010 15:31:37