Information leakage and opportunistic behavior before analyst recommendations:An analysis of the quoting behavior of Nasdaq market makers

摘要

We document evidence consistent with the presence of information leakage and opportunistic behavior before analyst recommendation revisions for Nasdaq-listed stocks. We examine the quoting behavior of market makers affiliated with the same brokerage house as the recommending analysts (“recommending market makers”). In the hour and a half (three hours) before upgrades (downgrades), recommending market makers change their quoting behavior. These changes anticipate the direction of pending recommendations and are highly significant, even after controlling for their own non-announcement behavior and for the contemporaneous quoting behavior of other market makers. Further, the recommending market makers’ quoting behavior has explanatory power for stock returns immediately preceding the public announcements. These findings are consistent with non-public information being impounded into stock prices due to opportunistic behavior by recommending market makers or by investors who trade through recommending market makers.