Sending Mixed Messages: Investor Interpretations of Disclosures of Analyst Stock Ownership

Psychology, Public Policy, and Law, Forthcoming

Posted: 25 Feb 2012 Last revised: 1 Jul 2013

See all articles by Ahmed E. Taha

Ahmed E. Taha

Pepperdine University - Rick J. Caruso School of Law

John V. Petrocelli

Wake Forest University

Date Written: July 1, 2013

Abstract

Sell-side securities analysts who recommend stocks that they own have a conflict of interest. If investors buy the stocks in response to the analysts’ recommendations, the stocks’ prices will rise, increasing the analysts’ personal wealth. Thus, analysts are legally required to disclose financial interests in securities of companies they cover. However, investors might view this disclosure favorably – for example, as a sign of the analyst’s confidence in the stock – rather than unfavorably as the law intends. This article presents the results of an experiment indicating that investors view analyst stock ownership more unfavorably than favorably. In addition, the experiment’s results suggest that disclosures that also briefly explain why analyst stock ownership creates a conflict of interest would lead investors to view it even more unfavorably.

Keywords: Analyst, Conflict of Interest, Disclosure, Stock, Broker-Dealer, Investor, Investor Protection

JEL Classification: K20, K22

Suggested Citation

Taha, Ahmed E. and Petrocelli, John V., Sending Mixed Messages: Investor Interpretations of Disclosures of Analyst Stock Ownership (July 1, 2013). Psychology, Public Policy, and Law, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2010777 or http://dx.doi.org/10.2139/ssrn.2010777

Ahmed E. Taha (Contact Author)

Pepperdine University - Rick J. Caruso School of Law ( email )

24255 Pacific Coast Highway
Malibu, CA 90263
United States

John V. Petrocelli

Wake Forest University ( email )

2601 Wake Forest Road
Winston-Salem, NC 27109
United States

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