An Empirical Model of Stock Analysts' Recommendations: Market Fundamentals, Conflicts of Interest, and Peer Effects

38 Pages Posted: 2 Sep 2004 Last revised: 24 Aug 2022

See all articles by Patrick Bajari

Patrick Bajari

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

John Krainer

Board of Governors of the Federal Reserve System

Date Written: August 2004

Abstract

In this paper we develop an empirical model of equity analyst recommendations for firms in the NASDAQ 100 during 1998-2003. In the model we allow recommendations to depend on publicly observed information, measures of an analyst's beliefs about a stock's future earnings, investment banking activity, and peer group effects which determine industry norms. To address the reflection problem, we propose a new approach to identification and estimation of models with peer effects suggested by recent work on estimating games. Our empirical results suggest that recommendations depend most heavily on publicly observable information about the stocks and on industry norms. In most of our specifications, the existence of an investment banking deal does not have a statistically significant relationship with analysts' stock recommendations.

Suggested Citation

Bajari, Patrick and Krainer, John, An Empirical Model of Stock Analysts' Recommendations: Market Fundamentals, Conflicts of Interest, and Peer Effects (August 2004). NBER Working Paper No. w10665, Available at SSRN: https://ssrn.com/abstract=579206

Patrick Bajari (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

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HOME PAGE: http://www-personal.umich.edu/~bajari/

National Bureau of Economic Research (NBER)

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John Krainer

Board of Governors of the Federal Reserve System ( email )

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United States

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