Regulators are necessary. There, I said it. There is always a balance to strike between too little regulation, which often comes at the expense of consumers, and too much regulation, which may come at the expense of an efficient market. One of the areas that used to be a heavily unregulated market that was tilted against consumers was the market for sell-side research recommendations. Nobody checked if sell-side analysts gave fair ratings and recommendations on the stocks they covered. The result was that it all got out of hand during the tech craze of the late 1990s with sell-side analysts trying to attract issuers with favourable ratings to become clients of the investment banking arm of their employers. The result was that an analyst’s buy rating became effectively worthless as a signal to buy-side investors because the ratio of buy-rated stocks to sell-rated stocks was a whopping 39-to-1 (according to an analysis by
Analysts react to incentives, too
Analysts react to incentives, too
Analysts react to incentives, too
Regulators are necessary. There, I said it. There is always a balance to strike between too little regulation, which often comes at the expense of consumers, and too much regulation, which may come at the expense of an efficient market. One of the areas that used to be a heavily unregulated market that was tilted against consumers was the market for sell-side research recommendations. Nobody checked if sell-side analysts gave fair ratings and recommendations on the stocks they covered. The result was that it all got out of hand during the tech craze of the late 1990s with sell-side analysts trying to attract issuers with favourable ratings to become clients of the investment banking arm of their employers. The result was that an analyst’s buy rating became effectively worthless as a signal to buy-side investors because the ratio of buy-rated stocks to sell-rated stocks was a whopping 39-to-1 (according to an analysis by