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An Examination of Potential Bias in the Stock Ratings
of Investment Bank Research Analysts
Clifford Y. Baugh and Pan G. Yatrakis*
*University of Maryland
University College and Nova Southeastern University, respectively
Abstract
This paper
examines the stock picks of sell-side securities analysts and compares them with
those of independent analysts to determine whether bias exists in the
recommendations of the former. Stock ratings issued by sell-side analysts for
the Dow Jones 30 Companies and compiled by First Call/ Thomson Financial were
compared to ratings of independent analysts collected by InvestarsTM. Independent analysts were
found to be more objective in their ratings than sell-side analysts.
Sell-side analysts were found to revise their recommendations downward after
the fact more frequently than independent analysts. The authors’ findings
serve as a caution to unsophisticated investors that an excessive “buy” bias
may still exist among sell-side analysts, despite the extensive publicity of
recent months.
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