The greater the volume, the greater the analyst

Finance Research Letters, Volume 51, January 2023

Vrije Universiteit Amsterdam, Swedish House of Finance and Tinbergen Institute, The Netherlands
Received 2 August 2022, Revised 8 September 2022, Accepted 23 September 2022, Available online 29 September 2022, Version of Record 26 October 2022.


Are sell-side security analysts paid for turnover-generating research? Using hand-collected annual income data from tax records in Sweden for the 1997-2007-year period, I show that analysts’ compensations increase in the trading turnover that their recommendations generate. Analysts are paid 0.002 % of broker-trading volume, or approximately 1 % of broker’s commission revenues. The findings empirically validate the previously assumed turnover-compensation link and estimate its magnitude. The results may have policy implications related to the Markets in Financial Instruments Directive.