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Conflicts of Interest in the Stock Recommendations of Investment Banks and Their Determinants

Published online by Cambridge University Press:  01 October 2009

Chung-Hua Shen  and
Hsiang-Lin Chih
Chung-Hua Shen
Affiliation:
College of Management, National Taiwan University, Taipei 106, Taiwan. [email protected]
Hsiang-Lin Chih
Affiliation:
College of Business, National Taipei University, 151 University Rd., San Shia, Taipei, 237, Taiwan. [email protected]
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Abstract

This study explores the phenomena associated with conflicts of interest, particularly as they pertain to the brokerage and proprietary trading divisions of investment banks. This distinguishes it from past studies, which have researched conflicts of interest between underwriting and brokerage divisions. We examine whether or not an investment bank issues buy recommendations to the market and buys (sells) the same recommended stocks through its proprietary trading division before (after) recommendations, and if so, to what extent this goes on. We find that these conflicts of interest do exist and that these investment banks can profit from their recommendations in the short run.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 44 , Issue 5 , October 2009 , pp. 1149 - 1171
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2009

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