Do Connections With Buy-Side Analyst Research Analysis

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Critique: Cici, Shane, Yang (2017), Do Connections with Buy-Side analysts inform Sell-Side Analyst Research? It is easier to be the first, rather than the best. I Front End Motivation Following Brown, Call, Clement, and Sharp’s (2016) survey of buy-side analysts (BSAs), the authors were inspired further investigate the flow of information between buy- and sell-side analysts (SSAs). Brown et al (2016) found that 55.10% of BSAs have conversations with SSAs more than 24 time per year. Clearly, this frequency of private communication is interesting as it suggests that the flow of private information flows both ways, rather than just to BSAs from SSAs. The methodology employed by the authors is the first attempt to empirically formalise this…show more content…
If a BSA is covering 20 stocks and communicating approximately 30 times per year – is the effect as pronounced as it was found to be in Table 3? 30 conversations for 20 stocks, likely with a range of SSAs at a few research houses does not necessarily build strong relationships that would induce private information sharing. It may be valuable to adjust for industry. SSAs in oil and gas are likely more valuable to BSAs due to their expert knowledge required, or in the opposite case some funds directly hire former staff members of their largest holdings – in order to inform their modelling and competitor modelling. Exploring industries with more niche or complex systems could be valuable to remove the aggregated effect. Construct Validity As noted previously the construct validity of their primary contribution is questionable – but it is the first to attempt to define a publicly unobservable relationship. The major issue is that the 13F reports only indicate what actually went into the portfolio – whereas the most value a SSA adds to the BSA investment process is before the stock enters the portfolio. Although the authors are primarily focused on the BSA to SSA information flow, without adequately capturing the nature of the relationship at the most important phase – the results are likely to be misrepresentative. Similarly, the CONNECTION term focuses on information swapped about a single stock. However, in reality, it may be the case that the
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