The Value of Intermediation in the Stock Market

Maggio, Marco Di; Egan, Mark; Franzoni, Francesco

doi:10.3386/w26147

Cited by 7 publications

(2 citation statements)

References 66 publications

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“…A 2014 survey conducted by Greenwich Associates among buy‐side institutions documents that institutional investors spent $11.55 billion on trading commissions on U.S. equities and that 59% of such commissions were paid for analyst research services. More recently, Di Maggio, Egan, and Franzoni (2021) document that institutional investors are willing to pay roughly 40% higher trading commissions to get access to top analysts’ research. However, existing studies attempting to pin down the impact of analyst research on institutional trading provide mixed evidence.…”

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confidence: 99%

Are Analyst Short‐Term Trade Ideas Valuable?

Birru¹,

Gokkaya²,

LIU³

et al. 2022

The Journal of Finance

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Short-term trade ideas are a component of analyst research highly valued by institutional investors. Using a novel and comprehensive database, we find that trade ideas have a stock price impact at least as large as recommendation and target price changes. Trade ideas based on expectations of future events are more informative than those identifying incomplete incorporation of past information in stock prices. Analysts with better access to a firm's management produce better trade ideas. Institutional investors trade in the direction of trade ideas. Investors following trade ideas can earn significant abnormal returns, consistent with analysts possessing valuable short-term stock-picking skills.ON NOVEMBER 26, 2012, THE analyst following the common stock of Bank of America (BAC) at Guggenheim Securities made a tactical trading call suggesting that investors sell BAC over the next three months based on his expectation of the impact on BAC of the U.S. economy being pushed over fiscal cliffs. At the same time, the analyst reiterated his buy recommendation on BAC over a 12-month period based on his long-term investment thesis. Although the literature has raised concerns about analysts speaking with two tongues (e.g., Malmendier and Shantikumar (2014)), here we have an analyst issuing a trading sell on BAC for the near term even though he considers it a buy for the long term. 1 Issuing diverging stock opinions across different investment horizons is an accepted practice by the Financial Industry Regulatory Authority (FINRA), the self-regulatory organization of the securities industry, because doing so

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confidence: 99%

Are Analyst Short‐Term Trade Ideas Valuable?

Birru¹,

Gokkaya²,

LIU³

et al. 2022

The Journal of Finance

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show abstract

“…In the case of demand estimation, the statistical model (1) is the logit regression and the economic model (2) is the random utility model. Examples in corporate finance and banking abound (e.g.,Xiao 2020;Di Maggio, Egan, and Franzoni 2021; Egan, Lewellen, and Sunderam 2021).…”

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confidence: 99%

Integrating Structural and Reduced-Form Methods in Empirical Finance

Whited¹

2022

Preprint

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I discuss various ways in which inference based on the estimation of the parameters of statistical models (reduced-form estimation) can be combined with inference based on the estimation of the parameters of economic models (structural estimation). I discuss five basic categories of integration: directly combining the two methods, using statistical models to simplify structural estimation, using structural estimation to extend the validity of reduced-form results, using reduced-form techniques to assess the external validity of structural estimations, and using structural estimation as a sample selection remedy. I illustrate each of these methods with examples from corporate finance, banking, and personal finance.

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Fintech and Money

Lemma

2020

FinTech Regulation

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The Value of Intermediation in the Stock Market

Cited by 7 publications

References 66 publications

Are Analyst Short‐Term Trade Ideas Valuable?

Are Analyst Short‐Term Trade Ideas Valuable?

Integrating Structural and Reduced-Form Methods in Empirical Finance

Fintech and Money

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