Security Analysis, Dealer-Analyst Collaboration, and Market Quality: Evidence from the NASDAQ Market in the USA

Kee H. Chung, Mingsheng Li, Xin Zhao

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

In this study we analyze the effect of the security analysis activities on stock market liquidity and execution quality. We show that stocks followed by financial analysts have better market liquidity and execution quality than stocks with no analyst following, and stocks followed by affiliated analysts have better market liquidity and execution quality than stocks followed by unaffiliated analysts. The superior market liquidity of stocks followed by affiliated analysts can be explained by aggressive dealer quotes from analyst-dealer information sharing. Overall, our results suggest that public traders benefit from analyst coverage and collaboration between analysts and dealers through high liquidity and low transaction costs.

Original languageEnglish (US)
Pages (from-to)1376-1402
Number of pages27
JournalJournal of Business Finance and Accounting
Volume39
Issue number9-10
DOIs
StatePublished - Nov 1 2012

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Dealers
Analysts
Market quality
Security analysis
Execution quality
Market liquidity
Analyst coverage
Analyst following
Stock market liquidity
Traders
Financial analysts
Transaction costs
Information sharing
Liquidity

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance

Cite this

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abstract = "In this study we analyze the effect of the security analysis activities on stock market liquidity and execution quality. We show that stocks followed by financial analysts have better market liquidity and execution quality than stocks with no analyst following, and stocks followed by affiliated analysts have better market liquidity and execution quality than stocks followed by unaffiliated analysts. The superior market liquidity of stocks followed by affiliated analysts can be explained by aggressive dealer quotes from analyst-dealer information sharing. Overall, our results suggest that public traders benefit from analyst coverage and collaboration between analysts and dealers through high liquidity and low transaction costs.",
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Security Analysis, Dealer-Analyst Collaboration, and Market Quality : Evidence from the NASDAQ Market in the USA. / Chung, Kee H.; Li, Mingsheng; Zhao, Xin.

In: Journal of Business Finance and Accounting, Vol. 39, No. 9-10, 01.11.2012, p. 1376-1402.

Research output: Contribution to journalArticle

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