Getting Out Early: An Analysis of Market Making Activity at the Recommending Analyst's Firm




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    • Juergens is with the University of Texas–Austin and Lindsey is with Arizona State University. We are indebted to Gradient Analytics, and especially Carr Bettis, for the provision of Thomson Financial's I/B/E/S data. We would like to thank Nasdaq for permission to use the Nasdaq PostData. A W.P. Carey School of Business Research Support Grant funded data purchase. We thank Cristi Gleason, Paul Irvine, Marc Lipson, Alexander Ljungqvist, Spencer Martin, Maureen O'Hara, Jesus Salas, Heather Tookes, Sunil Wahal, and seminar participants at Arizona State University, Drexel University, New York University, University of Kansas, University of Miami, the 17th Annual Conference on Financial Economics and Accounting, and the 2006 European Finance Association Annual Meetings for helpful comments and suggestions. The usual disclaimer applies.


This paper examines trading volume for Nasdaq market makers around analyst recommendation changes issued by an analyst at the same firm. Using Nasdaq PostData, we find a disproportionate increase in market making volume associated with the firm's recommendation changes and evidence of elevated sell volume at the recommending analyst's firm in the 2 days preceding a downgrade. The implications are that the information source matters in determining the placement of trades and that the issuing analyst's firm appears to be rewarded for prereleasing information through increased volume. These findings constitute new evidence of compensation for research production through the market making channel.