Buy-side trades and sell-side recommendations: Interactions and information content

We examine the performance of buy-side institutional investor trades and sell-side brokerage analyst stock recommendations, as well as their interactions. Buy-side trades follow sell-side analyst recommendations but not the other way around. While buy-side purchases significantly outperform their sales, the difference in performance is largely concentrated on the day of the transaction. Following recommendation changes, buy-side trades in the same direction as the recommendation change earn the same returns as trades in the opposite direction. Therefore, institutional investors do not exhibit special skills in discerning the quality of recommendations. (C) 2011 Elsevier B.V. All rights reserved.