Informed Trading of Sell-Side Analysts: Evidence from Class Action Lawsuits
DOI:
https://doi.org/10.58567/jea03030005Keywords:
Sell-side analyst; front running; securities class action lawsuitsAbstract
This paper examines whether sell-side analyst-affiliated investors trade stocks before their analysts release material information. Using class action lawsuits, I explore the pre-lawsuit periods and investigate how potentially informed analysts trade their covered firms. The event study finds that analyst-affiliated investors reduce their stockholdings of firms prior to their own analyst downgrades. The findings are more pronounced among investors employed by investment banks. The post-trading performance of analyst-affiliated investors suggests that they have superior information and front-run to maximize benefits.
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