Analyst Recommendations and NASDAQ Market Making Activity
Rutgers University Economics Working Paper No. 2003-07
50 Pages Posted: 11 Feb 2004
Date Written: December 2003
Abstract
I investigate the linkage between liquidity provision by Nasdaq market makers and analysts in the same firm. Using three measures of market activity, I find that Nasdaq firms are more likely to provide buy side liquidity in anticipation of upgrades in the period 1999-2000. ECN activity supports this pattern. Firm level evidence shows that 15 of 42 market makers studied engage in significant pre-recommendation activity. I estimate cumulative abnormal returns of more than 75% and profits of almost $600 million in a sample of 47 large capitalization stocks.
Keywords: Analyst, Nasdaq, market maker
JEL Classification: G14, G24
Suggested Citation: Suggested Citation
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