Abstract
Responding to the allegedly biased research reports issued by large investment banks, the Global Research Analyst Settlement and related regulations went to great lengths to weaken the investment banking tie and mitigate the conflicts of interest faced by investment bank analysts. The primary objectives of these regulations are to improve investor confidence and protect small investors. In this study I test the effect of the regulations on small and large trader trading activity. Comparing abnormal trading volume across time periods, I find that abnormal trading volume upon investment bank recommendations increased in the Post-Reg. period, for both types of traders, at any level of recommendations (revisions), suggesting that investors are relying more on i-bank recommendations. Moreover, small trader trading profit following these recommendations has increased since the regulations while large trader trading profit has decreased. The wealth-transfer from small traders to large traders has been largely reduced. I conclude that small traders benefited from the Settlement and related regulations.
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