Analyst Reputation And Affiliated Dealer's Market Making

The authors investigate the effects of analysts' reputation on affiliated dealers' market making activities. They find that, for a given stock, dealers who have affiliated analysts covering the stock quote and trade more aggressively than those who do not have any affiliated analysts. More importantly, the reputation of affiliated analysts plays an additional role in the affiliated dealer's quote and trade behavior. Dealers with affiliated star-analysts post more aggressive quotes and have larger market shares than dealers with affiliated non-star analysts.