Bridge over ocean
1 May 2004 Financial Analysts Journal Volume 60, Issue 3

Asset Management and Affiliated Analysts' Forecasts

  1. Paul Irvine
  2. Paul J. Simko
  3. Siva Nathan

The interaction between the various departments of a full-service brokerage firm can have positive effects. An asset management department operates the firm's mutual funds and has a need for high-quality information. Thus, the firm's sell-side analysts in the research department are motivated to gather information about particular securities and to use the asset management department as an additional information source. The outcome can be to raise the quality of sell-side analysts' earnings forecasts. In the study reported here, affiliated analysts' earnings forecasts for a security became significantly more accurate as the fund family's percentage ownership of that security increased. Also, the study found a significant positive relationship between the accuracy of an affiliated analyst before the new investment and the percentage of the company's shares acquired by that fund family. The implication is that fund families make the largest purchases of stocks for which their affiliated analysts provided the most accurate forecasts ex ante. These results have implications for investors who are using analysts' earnings forecasts.

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