search query: @indexterm INCENTIVES / total: 682
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| Author: | Malmendier, U. Shantihikumar, D. |
| Title: | Are small investors naive about incentives? |
| Journal: | Journal of Financial Economics
2007 : AUG, VOL. 85:2, p. 457-489 |
| Index terms: | behavioural science incentives institutional investors |
| Freeterms: | recommendation |
| Language: | eng |
| Abstract: | Security analysts tend to bias stock recommendations upward, particularly if they are affiliated with the underwriter. This study analyzes how investors account for such distortions. Using the NYSE Trades and Quotations database, it is found that large traders adjust their trading response downward. While they exert buy pressure following strong buy recommendations, they display no reaction to buy recommendations and selling pressure following hold recommendations. This “discounting” is even more pronounced when the analyst is affiliated with the underwriter. Small traders, instead, follow recommendations literally. They exert positive pressure following both buy and strong buy recommendations and zero pressure following hold recommendations. |
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