Sell-Side Analysts and Stock Mispricing: Evidence from Mutual Fund Flow-Driven Trading Pressure

Using the setting of extreme mutual fund flow-driven trading pressure, this paper examines sell-side analysts’ role in stabilizing capital markets. We find that a select group of analysts persistently issue price-correcting recommendation changes for stocks experiencing mutual fund flow-driven mispricing. Such recommendation changes are accompanied by little change to their concurrent earnings forecasts and appear to be driven by the superior research skill of these “mispricing-sensitive” analysts. Stocks receiving price-correcting recommendation changes experience less severe liquidity deterioration, more immediate price correction, and consequently smaller subsequent long-run return reversal. Our findings highlight analysts’ unique role in facilitating liquidity provision and stabilizing capital markets during severe mispricing events. This paper was accepted by Neng Wang, finance.

• 저널Management Science · 65(11) · 5427–5448
• 토픽Financial Markets and Investment Strategies · Finance
• DOI10.1287/mnsc.2018.3073
• 저자Johan Sulaeman, Kelsey D. Wei