Fund Portfolio Holdings and Affiliated Analyst's Objectivity: Do Equity and Employment Relationship Matter?

Abstract

This paper investigates how the equity relationship between fund company and brokerage firm as well as employment relationship between analyst and brokerage firm affect affiliated fund stock portfolio holding and affiliated analyst’s objectivity. By using a specific data of such equity and employment relationship, we find that equity and employment relationship do matter in fund portfolio holdings and analyst’s objectivity. Specifically, analysts tend to release more optimal ratings on stocks that have been hold by the funds, and the funds tend to significantly reduce the stocks in their portfolio once the analysts have announced high ratings on the stocks. Moreover, the analysts in employment relationship with majority-shareholder of funds and with low reputation reveal worse objectivity. In addition, from the point of abnormal return, analysts in employment relationship with majority-shareholder of funds and with low reputation damage the interests of common investors.