Discussion of “analyst stock ownership and stock recommendations”☆

Abstract

Chan et al. (2018) provide the first large scale study of sell-side analysts owning firms for which they also provide research coverage. Consistent with signaling credibility, they find analysts with ownership positions allocate more effort to these firms and the informativeness of their recommendations are enhanced. However, consistent with analyst conflicts, they find analysts that own the stock issue more optimistic target prices and frequently trade against their outstanding recommendations (which is prohibited). In this discussion, I review the evidence and point out the study's limitations. Despite its shortcomings, this paper should renew attention on analyst ownership particularly because it has potentially important policy implications. I pose several questions that may be potentially interesting to guide future research.