Working Paper: NBER ID: w28038
Authors: Justin Birru; Sinan Gokkaya; Xi Liu; Ren M. Stulz
Abstract: Following the Global Settlement, analysts extensively use a top pick designation to highlight their highest conviction best ideas. Such a designation enables analysts to provide greater granularity of information, but it can potentially be influenced by conflicts of interest. Examining a comprehensive sample of top picks, we find, even though top picks are more likely to be investment banking clients, they have greater investment value, attract greater media and investor attention, and lead to more trading than buy recommendations. Bad top picks are more likely to be influenced by strategic objectives and have adverse consequences for analysts. Institutions, but not retail investors, discern between good and bad top picks.
Keywords: No keywords provided
JEL Codes: G11; G12; G14; G20; G23; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| top picks (Y10) | investment banking clients (G24) |
| top picks (Y10) | media and investor attention (G24) |
| top picks (Y10) | trading activity (F19) |
| top picks (Y10) | characteristic-adjusted monthly returns (G12) |
| buy recommendations (G24) | characteristic-adjusted monthly returns (G12) |
| bad top picks (Y70) | strategic objectives (L21) |
| institutional investors (G23) | discern between good and bad top picks (C52) |
| market reaction to good top picks (G11) | significantly positive (C29) |
| market reaction to bad top picks (G11) | insignificant reactions (C20) |