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RFS Advance Access originally published online on July 6, 2006
Review of Financial Studies 2007 20(3):741-768; doi:10.1093/rfs/hhl027
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© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.

Tipping

Paul Irvine
Terry College of Business, University of Georgia

Marc Lipson
Darden Graduate School of Business Administration, University of Virginia

Andy Puckett
University of Missouri

Address correspondence to Paul Irvine, Terry College of Business, University of Georgia, Athens, GA 30602, or e-mail: pirvine{at}terry.uga.edu

We investigate the trading of institutions immediately before the release of analysts’ initial buy recommendations. We document abnormally high institutional trading volume and buying beginning five days before recommendations are publicly released. Abnormal buying is related to initiation characteristics that would require knowledge of the content of the report—such as the identity of the analyst and brokerage firm, and whether the recommendation is a strong buy. We confirm that institutions buying before the recommendation release earn abnormal profits. Our results are consistent with institutional traders receiving tips regarding the contents of forthcoming analysts’ reports. (JEL G14, G18, G24)


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