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When investors are considering the purchase of an individual security, analysts of the major Wall Street securities firms are one source of...
When investors are considering the purchase of an individual security, analysts of the major Wall Street securities firms are one source of information. While there are many issues related to analysts' recommendations, one of the most important for investors to understand is conflict of interest. The collapse of the high tech stock bubble and the Enron debacle have revealed some significant weaknesses in analysts' calls. The Securities and Exchange Commission published a special report on its Web site that discusses why investors should question analysts' recommendations, including potential conflicts of interest. The report, "Analyzing Analyst Recommendations," (Links to an external site.)Links to an external site. identifies different types of analysts, potential conflicts of interest and steps that investors can take to protect themselves.
After reading this report, answer the following questions:
- Describe the potential conflicts of interest that may be associated with an analyst's recommendation.
- What steps are recommended to uncover conflicts of interest that may be present with analysts?
- Are disclosures of conflicts of interest always obvious? Briefly explain.
