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We investigate a sample of 50 firm-events, identified in the Global Research Analysts Settlement, in which analysts were discovered to have acted misleadingly ex post. In this setting, analysts' incentives caused them to issue public disclosures that differed from their private beliefs. We document that these firms' institutional holdings decline significantly during the period in which the analysts issued misleading disclosures. During this period daily small-size trades (a proxy for individual investors) are dominated by buy orders while daily large-size trades (a proxy for institutional investors) are dominated by sell orders. Short interest increases during the event period, consistent with the idea that sophisticated investors are selling. Our estimates of investors' trading losses show that individual investors lost about two and a half times the amount lost by institutions. Overall, the results suggest a wealth transfer from individuals to institutions that is likely attributable to analysts' misleading behavior.
Franco et al. (Thu,) studied this question.