MARKET-STRUCTURE, INFORMED TRADING, AND ANALYSTS RECOMMENDATIONS

We examine stock price behavior in response to initial coverage, buy r ecommendations that are pre-released to important clients before the s tock market opens, and find a strong positive valuation effect at the open. On average, it takes five minutes of trading for NYSE/AMEX stock s and 15 minutes for NASDAQ stocks to reflect the private information contained in these analyst recommendations, so when informational asym metry is high, the centralized call market is more efficient than a co mpetitive, but fragmented dealer market. Public news release leaves sh are prices unaltered. Overall, competition among informed traders caus es private information to be rapidly incorporated into stock prices.