Do Institutions Put Their Money Where Their Mouths Are? Empirical evidence from analysts' stock recommendations, their firms' ex-ante holding and ex-post trading

Abstract

I empirically study the relationship between analysts' stock recommendations and their affiliated institutions' ex-ante holding and ex-post trading. I use data of 1,014,720 stock recommendations issued by analysts from 80 institutions for a total of 4,219 stocks from the years 1993 to 2021 collected from the Institutional Brokers’ Estimate System (I/B/E/S) Database and the Institutional Holdings (13F) Section of Thomson/Refinitiv Database. I find that (i) institutions’ trading aligns with their analysts’ recommendations, (ii) these recommendations are based on objective judgment which is less likely to be influenced by their affiliated institutions’ ex-ante stock ownership, and (iii) following analysts' stock recommendations outperform the market during the past 29 years.