Analyst reputation dealer affiliation, and market making

Mingsheng Li, Xin Zhao

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

We investigate the effects of analysts' affiliation and reputation on dealers' market making activities. We find that for a given stock, dealers who have affiliated analysts covering the stock quote and trade more aggressively than those who do not have any affiliated analysts. More important, the reputation of affiliated analysts plays an additional role in the affiliated dealer's quote and trade behavior. Dealers with affiliated star analysts post more aggressive quotes and have larger market shares than dealers with affiliated nonstar analysts. Although dealers who post more aggressive quotes also induce affiliated star analysts to cover the stocks, the positive effect of analyst reputation on the affiliated dealers' quote aggressiveness remains significant and robust after controlling for potential endogenous and simultaneous problems.

Original languageEnglish (US)
Pages (from-to)301-332
Number of pages32
JournalJournal of Financial Research
Volume31
Issue number4
DOIs
StatePublished - Dec 1 2008

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance

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