Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • May 2013
  • Article
  • Management Science

The Stock Selection and Performance of Buy-Side Analysts

By: Boris Groysberg, Paul Healy, George Serafeim and Devin Shanthikumar
  • Format:Print
ShareBar

Abstract

Prior research on equity analysts focuses almost exclusively on those employed by sell-side investment banks and brokerage houses. Yet investment firms undertake their own buy-side research and their analysts face different stock selection and recommendation incentives than their sell-side peers. We examine the selection and performance of stocks recommended by analysts at a large investment firm relative to those of sell-side analysts from mid-1997 to 2004. We find that the buy-side firm's analysts issue less optimistic recommendations for stocks with larger market capitalizations and lower return volatility than their sell-side peers, consistent with their facing fewer conflicts of interest and having a preference for liquid stocks. Tests with no controls for these effects indicate that annualized buy-side Strong Buy/Buy recommendations underperform those for sell-side peers by 5.9% using market-adjusted returns and by 3.8% using four-factor model abnormal returns. However, these findings are driven by differences in the stocks recommended and their market capitalization. After controlling for these selection effects, we find no difference in the performance of the buy- and sell-side analysts' Strong Buy/Buy recommendations.

Keywords

Buy-side Analysts; Sell-side Analysts; Stock Recommendations; Recommendation Optimism; Recommendation Performance; Investment Recommendations; Conflicts Of Interest; Financial Markets; Financial Institutions; Financial Services Industry; United States

Citation

Groysberg, Boris, Paul Healy, George Serafeim, and Devin Shanthikumar. "The Stock Selection and Performance of Buy-Side Analysts." Management Science 59, no. 5 (May 2013): 1062–1075.
  • SSRN
  • Find it at Harvard
  • Read Now

About The Authors

Boris Groysberg

Organizational Behavior
→More Publications

Paul M. Healy

Accounting and Management
→More Publications

George Serafeim

Accounting and Management
→More Publications

More from the Authors

    • March–April 2023
    • Harvard Business Review

    The New-Collar Workforce

    By: Colleen Ammerman, Boris Groysberg and Ginni Rometty
    • March 2023
    • Faculty Research

    Northvolt: Building Batteries to Fight Climate Change

    By: Debora L. Spar, Georgios Serafeim and Julia Comeau
    • March 2023
    • Faculty Research

    Shelly Sun at BrightStar Care: The Evolution of a Leader

    By: Boris Groysberg, Colleen Ammerman and Sarah L. Abbott
More from the Authors
  • The New-Collar Workforce By: Colleen Ammerman, Boris Groysberg and Ginni Rometty
  • Northvolt: Building Batteries to Fight Climate Change By: Debora L. Spar, Georgios Serafeim and Julia Comeau
  • Shelly Sun at BrightStar Care: The Evolution of a Leader By: Boris Groysberg, Colleen Ammerman and Sarah L. Abbott
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College