Analysts’ Stock Ownership and Stock Recommendations

Using hand-collected information, we find that analysts who own stock in a company they follow make more informative recommendations and exert more effort in covering the company. However, we also find that analysts with stock ownership issue more optimistic target price forecasts. These findings suggest that analysts’ stock ownership enhances the credibility of their recommendations by conveying their superior information, but also induces analysts to bias upwards their target price forecasts. Surprisingly, we find that 56% of analysts owning stock terminate their ownership while having a buy recommendation outstanding, suggesting a potentially widespread violation of the regulations on analysts’ research.