discussion of analyst following and institutional ownership beginning with beaver 1968 and ball and brown 1968 researchers have commented on the notion that firms differ in how much information is available to their investors firm size was first conjectured and later shown in several studies to be correlated with the availability of predisclosure information 1 o brien and bhushan extend this literature by examining whether changes in firm size cause changes in the number of analysts following a firm or whether the association between analyst following and firm size is due to the correlation between firm size and other variables they do so by simultaneously modeling analysts decisions concerning which firms to follow and institutions decisions concerning which firms to hold in their portfolios in her presentation o brien emphasized that they are not testing an equilibrium model of analysts and institutions behavior but rather conducting an exploratory investigation into the endogenous and exogenous factors influencing how much information is available about a firm the conference discussion focused primarily on two areas the incentives of analysts and institutions and the empirical procedures and results of the paper my discussion is structured around these two areas as well

variations in trading volume return volatility and trading costs evidence on recent price formation models patterns in stock market trading volume trading costs and return volatility are examined using new york stock exchange data from 1988 intraday test results indicate that for actively traded firms trading volume adverse selection costs and return volatility are higher in the first half hour of the day this evidence is inconsistent with the admati and pfleiderer 1988 model which predicts that trading costs are low when volume and return volatility are high interday test results show that for actively traded firms trading volume is low and adverse selection costs are high on monday which is consistent with the predictions of the foster and viswanathan 1990 model academics investors and regulators alike are now intensively focused upon understanding the volatility of asset returns and its relation to trading volume this interest was undoubtedly piqued by the market break of october 1987 a time during which volatility and trading volume reached unprecedented levels but even beforehand researchers observed regular differences in the return process for various hours of the day and days of the week research concerning temporal patterns in stock market volatility and volume falls in two groups studies that document observed patterns and studies that develop models to predict patterns among the studies in the first group are oldfield and rogalski 1980 french and roll 1986 stoll and whaley 1990 harris 1986 and wood mcinish and ord 1985 who report evidence on seasonalities in daily and weekly return variances among the regularities that have been documented using interday data is that volatility is higher when the market is open than when it is closed oldfield and rogalski 1980 french and roll 1986 and stoll and whaley 1990 for example point out significant differences in return volatility between trading

analysts incentives and street earnings we examine whether analysts incentives are associated with street earnings because prior research argues that analysts incentives to promote stocks increase in the extent to which the stock exhibits glamour characteristics we predict that analysts are more likely to make income increasing adjustments in determining street earnings for glamour stocks than for value stocks we find that analysts are more likely to exclude expense items from street earnings for glamour stocks than for value stocks and that excluded expense items help predict future earnings for glamour stocks but not for value stocks overall our results suggest that analysts self interest influences street earnings and this self interest leads to street earnings that are less useful in predicting future earnings for glamour stocks

forecast accuracy of individual analysts in nine industries the purpose of this paper is to investigate whether financial analysts with superior earnings forecasting ability can be distinguished on the basis of ex post forecast accuracy i explore the question by estimating and comparing average accuracy across individuals and by considering whether the observed distribution of analyst forecast accuracies differs from the distribution expected if their relative performances each year were purely random overall i do not find systematic differences in forecast accuracy across individuals financial press coverage suggests there are superior financial analysts for example institutional investor s annual all american research team includes analysts rated by money managers as superior on a variety of criteria including earnings forecasting ability to pick stocks and the quality of written reports clearly financial analyst services other than forecast accuracy are valued by their clients i focus on only one activity earnings forecasting for two reasons first forecast data are available quantitative and can be evaluated against observable earnings outcomes services such as insightful well written research reports are harder to evaluate quantitatively second academic use of analyst forecasts as earnings expectations data in capital markets empir

supply chain information in analyst reports on publicly traded companies abstract analyst reports are an important source of secondary data on companies for understanding a company s performance in the recent past and for getting guidance on its future performance we therefore analyzed the text of 1028 equity analyst reports of 145 fortune 500 global companies not including services sectors like it or banking published between 2009 and 2011 for supply chain related information we found that nearly three fifths of these reports contained supply chain information pertaining to inbound process or outbound aspects of the supply chain of the company at the report level there are significant industry effects for supply chain related content in analyst reports on the other hand aggregating information at the company level it appears that analysts focus on a particular supply chain aspect for a company as well as its sector furthermore logistic regression analysis suggests a link between the supply chain information provided when this is positive in orientation and the buy sell hold recommendation of the analyst regarding the company s stock

underreaction to industry wide earnings and the post forecast revision drift we test whether the post forecast revision drift is mainly attributable to investors underreaction to industry wide earnings news conveyed by analysts forecast revisions we find a large drift associated with industry wide earnings news but no drift associated with firm specific earnings news consistent with the functional fixation hypothesis we provide evidence that the post forecast revision drift is driven by investors underreaction to the higher persistence of industry wide earnings although prior research has focused on differential persistence of earnings components stemming from managerial reporting discretion we provide evidence suggesting that investors do not fully understand the differential earnings persistence attributable to industry fundamentals

contractual responses to the common pool prorationing of crude oil production this paper examines bargaining among firms to mitigate rent dissipation following the major oil discoveries of 1926 35 because of high bargaining costs firms chose prorationing instead of consolidation and unitization and success varied the analysis also shows that prorationing took the form it did because concession such as per well quotas were required to draw in small operations and the quotas led to predictable responses regarding rent dissipation prorationing despite its costs controlled total field production and costs conserved natural reservoir energies and lengthened field life when private agreements failed the parties successfully appealed for state enforcement since similar heterogeneities influnce regulations elsewhere in the economy detailed analysis of bargaining among firms is essential for insight into the emergence of various institutional forms 33 references 3 tables

return smoothing liquidity costs and investor flows evidence from a separate account platform we use a new hedge fund data set from a separate account platform to examine 1 how much of hedge fund return smoothing is due to main fund specific factors such as managerial reporting discretion and 2 the costs of removing hedge fund share restrictions these accounts trade pari passu with matching hedge funds but feature third party reporting and permissive share restrictions we use these properties to estimate that 33 of reported smoothing is due to managerial reporting methods the platform s fund level liquidity is associated with a 1 7 performance reduction on an annual basis investor flows chase monthly past performance on the platform but not in the associated funds this paper was accepted by neng wang finance

an analysis of the recommendations of the superstar money managers at barron s annual roundtable the authors examine the performance of common stock recommendations made by prominent money managers at barron s annual roundtable from 1968 to 1991 to avoid survivorship bias they examine the performance of recommendations by all the participants the buy recommendations earn significant abnormal returns of 1 91 percent from the recommendation day to the publication day a period of about fourteen days however the abnormal returns are essentially zero for one to three year postpublication day holding periods thus an individual investing according to the roundtable recommendations published in in barron s would not benefit from the advice copyright 1995 by american finance association

discrete expectational data and portfolio performance in this article we examine the information content in analysts recommendations which are made on a five point buy hold or sell scale our data set includes data on 10 000 forecasts per month unlike most prior studies our data set does not suffer from selection or survivorship bias we find information in analysts changes in recommendations approximately 4 5 extra return can be earned by purchasing new buys rather than new sells

the effects of regulation on industry structure and trade generation in the us securities industry abstract this study investigates the effects of regulation fd and the global research analyst settlement on market share within the us securities industry as well as the determinants of market share during 1996 2004 we find that these regulations did not cause top brokers to lose market share in spite of their reduction of information asymmetries existing within the brokerage industry they did however significantly reduce the quarterly variability in market share changes we find that regulation fd and the global research analyst settlement reduce the importance of an all star analyst issuer affiliation and analyst optimism for gaining brokerage market share we further discover that the global research analyst settlement increases the importance of coverage as a market share determinant while reducing the value of analyst experience for non top brokers we find that our results remain robust even when we limit our analysis to a set of pure brokerage firms

predisclosure information firm capitalization and security price behavior around earnings announcements several studies on the relationship between earnings reports and security price behavior provide evidence suggesting that a significant portion of the information revealed through earnings reports is reflected in security prices prior to the report month e g ball and brown 1968 and brown and kennelly 1972 this has been attributed at least partly to the existence of other more timely sources of information which allow market agents to forecast earnings prior to their release the evidence above reflects an average finding across all firms one question of interest is whether there are significant systematic crosssectional differences in the security price reactions to earnings announcements of firms which are associated with specific firm characteristics that lead to differential amounts of predisclosure information this study focuses on firm size capitalization as one such characteristic a firm

testing an aggressive investment strategy using value line ranks a comment in the june 1981 journal of finance clark holloway reviews returns on a value line investments service vl market portfolio over the past fourteen years although he concludes vl does indeed have the ability to choose good stocks he is careful not to present that conclusion explicitly as an indictment of the efficient markets hypothesis holloway s hesitation is appropriate since the results of this and similar articles about value line are not inconsistent with efficient markets in the article holloway observes that the probability of value line s success by mere chance is only 0286 that observation is a misuse of statistics value line is only one of a number of investment advisory services it was not selected ex ante for this experiment it was selected precisely because it has been successful that value line has put together a string of market successes from 1965 to 1978 is no more significant than the fact that there are always a few gamblers ahead of the house in las vegas if in efficient markets chances of success are about one in two the probability of a randomly selected investment advisory service suffering only three bad years out of 14 is indeed 0286 but out of a population of say 20 investment advisory services the probability of finding at least one with three or less bad years out of 14 is 44 in fact it would only take 24 investment services to give you a betterthan even chance of finding at least one as good as value line that the firm would want to advertise that success is certainly no surprise nor is it surprising that a number of businessmen and academics would notice how well value line has performed against the average but holloway and others have only focused on a firm in the tail of a standard binomial distribution and that doesn t contradict the existence of the distribution itself over 14 years an advisory service in the other tail 3 out of 14 losers will probably have gone out of business whatever clark holloway s intention his results are likely to be misunderstood this is not evidence of a capability systematically to beat the market the statistical experiment is wrongly conceived but if value line performs equally well in the future i promise to discard my faith in efficient markets

contract duration and relationship specific investments empirical evidence from coal markets this paper examines the importance of specific relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities data for 277 coal contracts are used to perform the analysis the results provide strong support for the view that buyers and sellers make longer commitments to the terms of future trade at the contract execution stage and rely less on repeated bargaining when relationship specific investments are more important

the role of financial analysts in the strategy formation process of business firms increasingly financial analysts are influencing the strategy formation process of corporations but so far little attention has been paid to the complex processes of interaction and the corresponding strategic outcomes this article discusses these influences through different theoretical lenses strategic management finance and accounting theory and economic sociology institutional and systems theory based on case study evidence from three companies we describe how the interactions between financial analysts and business firms take place and formulate several propositions on the relationship between financial analysts and business firms as well as on its influence on the strategic outcome of business firms the results suggest that the influence of financial analysts is indeed significant but depends on a number of contextual factors such as the financial situation of the company or the need for capital practicing managers can learn how to handle a turbulent environment such as the financial analyst community and how they can change their planning processes to absorb as much information as possible

information content of equity analyst reports abstract we catalog the complete contents of institutional investor all american analyst reports and examine the market reaction to their release including the justifications supporting an analyst s opinion reduces and in some models eliminates the significance of earnings forecasts and recommendation revisions analysts both provide new information and interpret previously released information the information in a report is most important for downgrades target prices and the analyst s justifications are the only significant elements for reiterations no correlation exists between valuation methodology and either analyst accuracy or the market s reaction to a report our adjusted r 2 s are much larger than those of studies using only summary measures

strategic choices of quality differentiation and pricing in financial services abstract two financial services firms fsfs produce information on future returns from risky assets incorporate this information in a report and sell the reports to investors the fsfs make strategic choices of the quality differentiation and prices of their reports their optimal strategic choices of quality and differentiation divide the market for the report into three segments each fsf has a monopoly in its own segment and the two compete head to head in a duopoly segment the sizes of the monopoly segments increase with increases in quality and differentiation an increase in differentiation reduces the size of the duopoly market while an increase in quality has an ambiguous effect on the duopoly market for high enough equilibrium differentiation the size of the duopoly market decreases with an increase in quality the non cooperative fsfs pursue niche strategies each focusing on a different related set of risks in order to coordinate the contents of their reports to achieve the equilibrium degree of product differentiation recent years have seen a worldwide wave of financial firm mergers and acquisitions this paper s model suggests that in equilibrium fsfs differentiate their products and develop profitable niches in principle however sufficiently strong economies of scope could lead to a small number of fsfs with little differentiation that dominate all financial services markets

information expected utility and portfolio choice we study the consumption investment problem of an agent with a constant relative risk aversion preference function who possesses noisy information about the future prospects of a stock we also solve for the value of information to the agent in closed form we find that information can significantly alter consumption and asset allocation decisions for reasonable parameter ranges information increases consumption in the vicinity of 25 information can shift the portfolio weight on a stock from 0 to around 70 thus de pending on the stock beta the weight on the market portfolio can be considerably reduced with information causing the appearance of underdiversification the model indicates that stock holdings of informed agents are positively related to wealth unrelated to systematic risk and negatively related to idiosyncratic uncertainty we also show that the dollar value of information to the agent depends linearly on his wealth and decreases with both the propensity to intermediate consumption and risk aversion

loss function assumptions in rational expectations tests on financial analysts earnings forecasts abstract prior research concludes that financial analysts do not process public information efficiently in generating their earnings forecasts the ordinary least squares ols regression based tests used in prior studies assume implicitly that analysts face a quadratic loss function in contrast we argue that analysts likely face a linear loss function and hence try to minimize their absolute forecast errors we conduct and compare rational expectations tests using these two alternative loss functions we reproduce most prior findings of forecast inefficiency with ols regressions but find virtually no evidence of forecast inefficiency with least absolute deviation regressions where we explicitly assume a linear loss function

do analysts generate trade for their firms evidence from the toronto stock exchange abstract it has generally been assumed that the potential commission revenue is an important determinant of a sell side analyst s decision of what firms to cover and what information to publicly release however because stock volume has not been disaggregated on a brokerage firm level uncertainty remains regarding the economic importance of the relation between analyst coverage and brokerage firm volume using a unique data set that identifies the broker s involved in each trade i find that brokerage volume is significantly higher in covered stocks than in uncovered stocks on average brokers increase their market share in covered stocks by 3 8 relative to uncovered stocks

an econometric model of serial correlation and illiquidity in hedge fund returns the returns to hedge funds and other alternative investments are often highly serially correlated in sharp contrast to the returns of more traditional investment vehicles such as long only equity portfolios and mutual funds in this paper we explore several sources of such serial correlation and show that the most likely explanation is illiquidity exposure i e investments in securities that are not actively traded and for which market prices are not always readily available for portfolios of illiquid securities reported returns will tend to be smoother than true economic returns which will understate volatility and increase risk adjusted performance measures such as the sharpe ratio we propose an econometric model of illiquidity exposure and develop estimators for the smoothing prole as well as a smoothing adjusted sharpe ratio for a sample of 908 hedge funds drawn from the tass database we show that our estimated smoothing coecien ts vary considerably across hedge fund style categories and may be a useful proxy for quantifying illiquidity exposure

the informative role of the value line investment survey evidence from stock highlights i examine abnormal stock returns associated with stock highlights published by the value line investment survey at the time of their publication stock highlights elicit strong positive abnormal returns they also have positive abnormal returns at the time of the earnings announcement preceding stock highlight publications post earnings announcement drift is present but is much too small to explain abnormal returns at the time of the publication of stock highlights thus value line stock highlights provide useful information to investors this information is rapidly reflected in stock prices consistent with market efficiency

earnings surprise research synthesis and perspectives an investigation of the relation between earnings surprise and three empirical anomalies the p e effect the size effect and the value line enigma indicates that the standardized unexpected earnings sue effect appears to be separate and distinct from each of the three the relations between the sue phenomenon and firm risk the appropriateness of the earnings expectations model and the role of transaction costs are also investigated the sue phenomenon is not attributable to inappropriate risk adjustment use of the wrong earnings expectations model or ignoring transaction costs the sue effect may be partly explained by analysts behavior and is both predictable and profitable the sue effect has also been observed in japan

brokerage commission schedules it is generally optimal for risk sharing reasons to base a charge for information on the signal realization when this is not possible a charge based on the amount of trading a brokerage commission may be a good alternative the optimal brokerage commission schedule is derived for a risk neutral information seller faced with risk averse purchasers who may differ in their risk aversion revenues from the brokerage commission are compared with those from a fixed charge for information and the optimal mutual fund management fee the brokerage industry is a significant source of information for investors about prospective security returns one indication of this is that of the 11 817 members of the association for investment management and research who listed their occupations as investment management or research in 1991 21 percent worked for brokers and investment dealers another is that since the abolition of fixed commissions a distinction has arisen between full service brokers who provide investors with investment information and discount brokers who charge lower commissions and provide only transaction services 1 the information produced by broker research is typically provided free of charge to investors in the expectation that it will stimulate trade rewarding the brokerage house with commissions 2 this paper compares the sale of investment information in return for a brokerage commission with direct sale for a fixed payment and indirect sale through the provision of investment management services in return for a

does your hedge fund manager smooth returns intentionally or inadvertently abstract we propose an econometrically logical approach that distinguishes intentional from inadvertent smoothing of hedge fund return other than the hedge fund return y we introduce an explanatory variable a market portfolio of hedge fund returns x by connecting x and y some critical parameters are found to be effectively related to testing the two types of return smoothing using those parameters we develop distinct desmoothing algorithms against intentional and inadvertent smoothing our empirical results show that although intentional smoothing is partly responsible for hedge fund smoothing and is done more consistently than inadvertent smoothing return smoothing is mainly caused by the nature of underlying assets

conflicts of interest in the stock recommendations of investment banks and their determinants 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

analysts and anomalies abstract analysts price targets and recommendations contradict stock return anomaly variables using an index based on 125 anomalies we find that analysts annual stock return forecasts are 11 higher for anomaly shorts than for anomaly longs anomaly shorts return forecasts are excessively optimistic exceeding realized returns by 34 recommendations also tend to be more favorable for anomaly shorts although this result varies across anomaly types consistent with analysts slowly incorporating anomaly information anomalies forecast revisions in both price targets and recommendations our findings imply that investors who follow analysts actionable information contribute to mispricing

the association between accounting earnings and security returns for large and small firms abstract the differential information hypothesis advanced by atiase 1980 states that information production and dissemination by private parties for the purpose of identifying mispriced securities is an increasing function of firm size this study examines two corollaries of that hypothesis first security prices of large firms anticipate accounting earnings earlier than security prices of small firms second for a given level of unexpected earnings the cumulative abnormal returns of small firms exceed those of large firms the results are generally consistent with atiase s hypothesis

the total cost of transactions on the nyse this paper develops a measure of execution costs market impact of transactions on the nyse the measure is the volume weighted average price over the trading day it yields results that are less biased than measures that use single prices such as closes the paper then applies this measure to a data set containing more than 14 000 actual trades we show that total transaction costs commission plus market impact costs average twenty three basis points of principal value for our sample commission costs averaging eighteen basis points are considerably higher than execution costs which average five basis points they vary slightly across brokers and significantly across money managers though brokers do not incur consistently high or low transaction costs money managers experience persistently high or lost costs finally the paper explores the possible tradeoff between commission expenditures and market impact costs paying higher commissions does not yield commensurately lower execution costs even after adjusting for trade difficulty we cannot determine whether other valuable brokerage services are being purchased with higher commission payments or whether some money managers really are inefficient consumers of brokerage trading services recent years have witnessed an explosion of institutional trading on the nation s stock exchanges in 1970 only 17 000 trades of blocks of 10 000 or more shares were done on the new york stock exchange these accounted for merely fifteen percent of total volume in 1984 there were 433 000 such block trades accounting for fifty percent of volume these trades are costly and in an informationally efficient stock market cannot help but have a deleterious effect on the investment performance of institutional investors

measuring investment performance in a rational expectations equilibrium model much research has been concerned with evaluating the performance of managed portfolios e g mutual funds and examining whether portfolio managers display in some sense superior performance superior performance would seemingly turn on the possession of superior information that is utilized in managing portfolios in general a fund s asset holdings or portfolio weights might not be observable to an outsider whether they are or not however they are likely to change over time this happens especially when better performance is a result of superior information since managers will change their portfolio composition on obtaining private information since such changes must be taken into account the problem of measuring performance of managed portfolios is inherently different from that of evaluating the performance of individual assets groups of assets or generally portfolios with constant and known composition

portfolio performance evaluation old issues and new insights this article presents a model that provides insights about various measures of portfolio performance the model explores several criticisms of these measures these include the problem of identifying an appropriate benchmark portfolio the possibility of overestimating risk because of market timing ability and the failure of informed investors to earn positive risk adjusted returns because of increasing risk aversion the article argues that these need not be serious impediments to performance evaluation

when cheaper is better fee determination in the market for equity mutual funds abstract in this paper we develop a model of the market for equity mutual funds that captures three key characteristics of this market first there is competition among funds second fund managers ability is not observed by investors before making their investment decisions third some investors do not make optimal use of all available information the main results of the paper are that 1 price competition is compatible with positive mark ups in equilibrium and 2 worse performing funds set fees that are greater or equal to those set by better performing funds these predictions are supported by available empirical evidence

firm size and the information content of prices with respect to earnings abstract beaver lambert and morse 1980 suggest that prices may be useful in forecasting future earnings we explore the information content of prices with respect to earnings by focusing on firm size and its relation to the predictive accuracy of price based earnings forecasts firm size proxies for the amount of information and for the number of traders and professional analysts processing the available information about an enterprise our empirical results are consistent with the hypothesis that price based earnings will outperform univariate time series forecasts by a greater margin for larger firms than for smaller firms

direct and indirect sale of information the authors compare two methods for a monopolist to sell information to traders in a financial market in a direct sale information buyers observe versions of the seller s signal while in an indirect sale the seller sells shares in a portfolio based on his private information it is shown that when traders are identical and pricing is linear there is a trade off between optimal surplus extraction that is possible under direct sale and more effective control of the usage of information that is possible under indirect sale the optimal selling method depends on how much information is revealed by equilibrium prices copyright 1990 by the econometric society

self selection and analyst coverage this paper examines the relation between analysts information about a stock s future prospects and their decisions to issue investment recommendations and earnings forecasts for that stock and the implications of this relation for the observed distribution of recommendations and earnings forecast errors articles in the financial press have long argued that analysts are reluctant to issue unfavorable investment information perhaps because they fear jeopardizing potential investment banking

the design and price of information abstract a data buyer faces a decision problem under uncertainty he can augment his initial private information with supplemental data from a data seller his willingness to pay for supplemental data is determined by the quality of his initial private information the data seller optimally offers a menu of statistical experiments we establish the properties that any revenue maximizing menu of experiments must satisfy every experiment is a non dispersed stochastic matrix and every menu contains a fully informative experiment in the cases of binary states and actions or binary types we provide an explicit construction of the optimal menu of experiments jel d42 d81 d82 d83

2 the institutional structure of production 1 prize lecture to the memory of alfred nobel december 9 1991 this abstract was borrowed from another version of this item

contracting for environmental property rights the case of vittel based on a real case of contracting for environmental property rights we explore several implications of coase s insights the case study adds empirical content to basic transaction costs concepts by analysing the design and implementation of a contractual arrangement between a pollutee a bottler of mineral water and several polluting farmers we analyse the bargaining between the two parties to determine how transaction cost issues valuation disputes bilateral monopoly conditions and third party effects were overcome and how they succeeded in contracting for environmental property rights we compare the vittel case with other similar cases to draw lessons for environmental rights negotiations

do hedge fund managers misreport returns evidence from the pooled distribution we find a significant discontinuity in the pooled distribution of monthly hedge fund returns the number of small gains far exceeds the number of small losses the dis continuity is present in live and defunct funds and funds of all ages suggesting that it is not caused by database biases the discontinuity is absent in the 3 months culminating in an audit suggesting it is not attributable to skillful loss avoidance the discontinuity disappears when using bimonthly returns indicating a reversal in fund performance following small gains this result suggests that the discontinuity is caused at least in part by temporarily overstated returns

the informational role of bond analysts this study uses a large sample of sell side bond analysts reports to examine the properties of recommendations provided by bond analysts and the impact of these recommendations on bond securities first we document that the distribution of bond analysts buy hold and sell recommendations is skewed positively but less so than the distribution of equity analysts recommendations the positive skewness in bond analysts recommendations is greater for

hedge funds pricing controls and the smoothing of self reported returns w e investigate the extent to which hedge fund managers smooth self reported returns in contrast to prior research on the anomalous properties of hedge fund returns we observe the mechanisms used to price the fund s investment positions and report the fund s performance to investors thereby allowing us to differentiate between asset illiquidity and misreporting based explanations we find that funds using less verifiable pricing sources and funds that provide managers with greater discretion in pricing investment positions are more likely to have returns consistent with intentional smoothing traditional controls however such as removing the manager from the setting and reporting of the fund s net asset value and the use of reputable auditors and administrators are not associated with lower levels of smoothing with respect to asset illiquidity versus misreporting investment style and portfolio characteristics explain 14 0 24 3 of the variation in our smoothing measures and pricing controls explain an additional 4 1 8 8 suggesting that asset illiquidity is the major factor driving the anomalous properties of self reported hedge fund returns jel g12 g23 m41 m42

mutual fund trades and the value of contradictory private information abstract we investigate the performance of mutual funds that trade using private information these funds are uniquely identified from a set of 2730 funds with 44 315 fund periods between 1994 and 2005 we compare the alignment of fund trades with brokers recommendations which we regard as public information in the universe of informed and uninformed mutual funds funds that systematically trade counter to the public information form a homogenous subset of the privately informed funds by using private information that contradicts the public information these funds exhibit a superior average performance after we control for serial correlation in fund returns we assess this advantage as being an economically significant 1 7 per annum we also show empirically that smaller funds are better able to capture the benefit of private information

taking time seriously dramatic world change has stimulated interest in research questions about the dynamics of politics we have seen increases in the number of time series data sets and the length of typical time series but three shortcomings are prevalent in published time series analysis first analysts often estimate models without testing restrictions implied by their specification second researchers link the theoretical concept of equilibrium with cointegration and error correction models third analysts often do a poor job of interpreting results the consequences include weak connections between theory and tests biased estimates and incorrect inferences we outline techniques for estimating linear dynamic regressions with stationary data and weakly exogenous regressors we recommend analysts 1 start with general dynamic models and test restrictions before adopting a particular specification and 2 use the wide array of information available from dynamic specifications we illustrate this strategy with data on congressional approval and tax rates across oecd countries

conflict of interest and the credibility of underwriter analyst recommendations brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public we show that stocks that underwriter analysts recommend perform more poorly than buy recommendations by unaffiliated brokers prior to at the time of and subsequent to the recommendation date we conclude that the recommendations by underwriter analysts show significant evidence of bias we show also that the market does not recognize the full extent of this bias the results suggest a potential conflict of interest inherent in the different functions that investment bankers perform

analyst following and count data econometrics abstract this paper reexamines the determinants of the number of analysts following a firm using econometric models based on count distributions we replicate bhushan s 1989 analyst following study to demonstrate the effects of using count data econometrics in lieu of ols in studying phenomena where the dependent variable ranges among nonnegative integers in contrast with the original paper our findings indicate the number of institutional investors is inversely related with analyst following we also provide econometric evidence to support the preferred use of the negative binomial model in estimating cross sectional analyst following regressions

asymmetric information bargaining problems with many agents a yes or no decision must be made about some issue all agents must agree the coase theorem asserts that the efficient outcome will always result suppose the value positive or negative that an individual attaches to an affirmative decision is privately known to that individual it is proved under very mild conditions that with independent types as the number of agents increases the probability of an affirmative efficient decision goes to zero an example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given

firm characteristics and analyst following abstract this paper examines the major determinants of the number of analysts following a firm a simple model of analyst following is proposed and several firm characteristics are suggested that are likely to influence the extent of a firm s analyst following by either affecting the aggregate demand for or supply of analyst services or both for the firm almost all of these characteristics are found to be strongly significant in affecting the extent of analyst following of firms and the empirical results generally accord well with economic intuition