Question

1. Sell-side analysts are frequently criticised for being too optimistic or biased, which is manifested in a disbalance between the frequency of their ‘Sell’ vs. ‘Buy’ investment recommendations. List at least three different types of firms that usually employ sell-side analysts and discuss how the employer-related context might give rise to analysts’ conflict of interest and affect their stock recommendations and price targets.If we buy into the story of analyst bias, should we stop listening to analysts? Why, or why not?
2. The European regulation MiFID II (Markets in Financial Instruments Directive), that was enacted in January 2018, is believed to have fundamentally affected the field of equity research. Discuss the implications of this regulation to sell-side analysts, fund managers and the investee companies (corporates).
3. Outline and critically assess the differences and similarities between (a) sell-side analysts, (b) buy-side analysts, and (c) active portfolio managers, in terms of:
   • the activities that they perform,
   • the objectives that they would be trying to achieve,
   • the types of firms that they typically work at, and
   • the skills and expertise that should be central to their roles

Answer 1

The conflicts can be due to:

• commercial requirements and the provision of brokerage services
• Financial Interests in Covered Companies eg. pre-IPO shares
• Compensation and reporting arrangements for sell-side analysts

We should not stop listening to analyst. Our decision making should be a mix of our own research regarding a stock recommendation and the analyst report. If both are similar it means, the analyst has done good job. Their research and analysis will surely help in investment decision making.

Terms	Sell side Analyst	Buy side Analyst	Active Portfolio Managers
Activities	track companies, management provide reports to clients & marketing	financial modelling,following industry,reading,conducting thorough research, find best information source	follow market and economic trends, forecasting, research
Objectives	Driving investment through their desk	make accurate decisions, quality recommendations for investment	beat the market in terms of returns
Type of Firms	brokerages, commercial banking, investment bank	funds(mutual, pension,hedge etc), venture capital	Investment Advisory, Wealth Management, Fund Management, asset management, hedge funds etc
Skills & Expertise	interpersonal, communication, industry knowledge, networking	risk analysis, up to date with market trends, ability to create reports for investment decisions, diligence	risk management, due diligence, industry knowledge, investment management, portfolio management, data interpretation, research and analysis