Financial analysts and price discovery

Abstract

We show that whether or not a bank/brokerage firm has top-rated financial analysts and high Wall Street Search rankings for their research is significantly related to that firm's contribution to price discovery, the process by which information is incorporated into stock prices. Our study relates cross-sectional characteristics of the quality of brokerage research, the asymmetric information environment, and order flow volume to a microstructure measure of price discovery developed by Granger and Gonzalo. We measure analysts' research quality with an industry-specific ranking by institutional investors, with an opinion survey of trading desk personnel, and with the number of top 3 analysts across all industries employed by the bank/brokerage firm. © 2008 AFAANZ.

Publication Title

Accounting and Finance

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