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What Motivates Buy-Side Analysts to Share Recommendations Online?

Author

Listed:
  • Steven Crawford

    (University of Houston, Houston, Texas 77004)

  • Wesley Gray

    (Alpha Architect, Broomall, Pennsylvania 19008)

  • Bryan R. Johnson

    (Creighton University, Omaha, Nebraska 68178)

  • Richard A. Price

    (University of Oklahoma, Norman, Oklahoma 73019)

Abstract

We examine why buy-side analysts share investment ideas on SumZero.com, a private social networking website designed to facilitate interaction and information sharing among buy-side professionals. We explore labor market motivations for information sharing and document that analysts with strong incentives to build a reputation (i.e., those who did not attend a top 10 university and those employed at small funds) are significantly more likely to share recommendations. Our findings indicate that analysts who share ideas are more likely to change jobs and that the likelihood of employment change is positively related to the ratings provided by peers. We also document that analyst recommendations generate significant returns when they are posted on SumZero and that prices drift in the direction of the recommendation. Long-window returns are particularly strong for contrarian buy recommendations and for most sell recommendations. Overall, we show that buy-side analysts share valuable private information in an online social network and that this can be an effective reputation-building and job-seeking tool.

Suggested Citation

  • Steven Crawford & Wesley Gray & Bryan R. Johnson & Richard A. Price, 2018. "What Motivates Buy-Side Analysts to Share Recommendations Online?," Management Science, INFORMS, vol. 64(6), pages 2574-2589, June.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:6:p:2574-2589
    DOI: 10.287/mnsc.2017.2749
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    References listed on IDEAS

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    3. Call, Andrew C. & Sharp, Nathan Y. & Shohfi, Thomas D., 2021. "Which buy-side institutions participate in public earnings conference calls? Implications for capital markets and sell-side coverage," Journal of Corporate Finance, Elsevier, vol. 68(C).

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