Do Hedge Funds Trade on Private Information? Evidence from Upcoming Changes in Analystss Stock Recommendations

Do Analysts Merely Serve as a Conduit for Management's Private Information? Evidence From Their Stock Recommendations Around Regulation FD

SSRN Electronic Journal ◽

10.2139/ssrn.667561 ◽

2005 ◽

Cited By ~ 1

Author(s):

Bin Ke ◽

Yong Yu

Keyword(s):

Private Information ◽

Stock Recommendations ◽

Regulation Fd

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Disclosure Policies of Investment Funds

Quarterly Journal of Finance ◽

10.1142/s2010139215500044 ◽

2015 ◽

Vol 05 (01) ◽

pp. 1550004 ◽

Cited By ~ 1

Author(s):

Thomas J. George ◽

Chuan-Yang Hwang

Keyword(s):

Mutual Funds ◽

Private Information ◽

Hedge Funds ◽

Poor Performance ◽

Securities Markets ◽

Public Disclosure ◽

Investment Funds ◽

Portfolio Holdings ◽

Liquidity Provision ◽

Future Performance

We examine voluntary and mandated disclosure of portfolio holdings by investment funds in a model where funds are characterized as having a stream of investment ideas and as providing liquidity to investors through redemption. We show that the greater is the fund's liquidity provision role, the more aggressively the fund trades on its ideas, the stronger is its preference to disclose information about its holdings voluntarily, and the weaker is its performance. We also show that mandatory disclosure can decrease information available in securities markets by crowding out the acquisition of private information that, through funds' trading, would be reflected in prices. Our model provides an explanation for why hedge funds and mutual funds differ in their resistance to public disclosure, and is consistent with stylized facts regarding how funds' investment decisions respond to poor performance and how differences in disclosure policies affect the future performance of well versus poorly performing funds.

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From K Street to Wall Street: Political Connections and Stock Recommendations

The Accounting Review ◽

10.2308/accr-51550 ◽

2016 ◽

Vol 92 (3) ◽

pp. 87-112 ◽

Cited By ~ 23

Author(s):

Dane M. Christensen ◽

Michael B. Mikhail ◽

Beverly R. Walther ◽

Laura A. Wellman

Keyword(s):

Affordable Care Act ◽

Private Information ◽

Relevant Information ◽

Political Connections ◽

Omitted Variables ◽

Political Contributions ◽

Security Analysts ◽

Wall Street ◽

Stock Recommendations ◽

Gain Access

ABSTRACTIn this study, we examine whether sell-side security analysts gain access to value-relevant information through political connections. We measure analysts' political connections based on political contributions at the brokerage-house level. We argue that if brokerages are able to obtain private information through their political connections, then analysts at politically connected brokerages should issue more profitable stock recommendations, and this increased profitability should be more pronounced for politically sensitive stocks. Our evidence is consistent with these predictions. Analyses of recommendations issued surrounding the Affordable Care Act further support our main inferences. Moreover, our findings hold after we employ numerous tests to address correlated omitted variables and endogeneity. Collectively, these results suggest that brokerages obtain value-relevant, nonpublic information from their political connections.JEL Classifications: G24; G38; G14.

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