Sung Gon Chung and Manoj Kulchania to be published in Journal of Empirical Finance


Mike Ilitch School of Business Associate Professor of Accounting Sung Gon Chung and Associate Professor of Finance Manoj Kulchania have had an article accepted for publication in the Journal of Empirical Finance, which focuses on publishing high-quality articles about financial economics, financial econometrics and theoretical works with clear empirical implications.

The article, “Hedge Funds and Their Prime Broker,” discusses research that suggests analyst recommendations may be favoring clients that generate larger fees.

The article was co-authored by Melvyn Teo from Singapore Management University.


Are sell-side analysts reluctant to go against the investment views of their hedge funds when these hedge funds are their prime brokerage clients? We show that prime broker analysts tend to upgrade stocks recently bought by their clients. For stocks with upgraded recommendations, post-announcement cumulative abnormal returns are significantly lower for those purchased by the prime brokerage clients. Our results are stronger with high-dollar-turnover clients who generate more trading commissions. We also find that a hedge fund with a large bet on a stock has a stronger incentive to pressure the fund’s prime brokers to issue a favorable recommendation on the stock. Results are not driven by stocks of firms with low analyst coverage or small size.

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