Abstract
We analyze the potential conflict of interest between analysts and brokers associated with each other. In contrast to the existing literature we do not analyze prediction accuracy and/or biases in analyst recommendations.
Instead we focus our analysis on brokers and examine whether their behavior systematically differs before and after investment recommendations are released. The evolution and dynamics of brokers quotes and trades are used to test for systematic trading patterns around the release of one's own investment recommendation.
In the model we control for brokers' responses to other investment advice and employ a SUR estimation framework. Data from the Prague Stock Exchange are used to demonstrate our methodology.
Finding significant and systematic differences in brokers' behavior, we conclude that misuse of investment recommendations is widespread.