Independents' Day? Analyst behavior around the Global Settlement

Jonathan Clarke, Ajay Khorana, Ajay Patel and P. Raghavendra Rau

Georgia Institute of Technology, Georgia Institute of Technology, Wake Forest University and Purdue University

In this paper we examine differences in the behavior of analysts at investment banks, pure brokerages and independent research firms in the period before and after the Global Settlement. We find that the Global Settlement has had no impact on analyst forecast accuracy and optimism. However, it has had a major impact on the proportion of buy recommendations issued by the analysts. Before the Settlement, analysts at independent research firms issued the lowest proportion of buy recommendations. After the Settlement, the proportion of buy recommendations fell across the board, with analysts at investment banks now being the least likely to issue buy recommendations. The Settlement had no impact on market reactions to the recommendation changes by analysts. Across both pre- and post-Settlement periods, analysts at independent research firms are treated as least informative by the market. Our overall findings question whether investors will be better served via a proposed shift in equity research to analysts at independent research firms. 

Download this paper