What Is a Research Report?
Let me tell you directly: a research report is a document put together by an analyst or strategist on an investment research team in a stock brokerage or investment bank. It might zero in on a particular stock or industry sector, a currency, commodity, or fixed-income instrument, or even a geographic region or country. These reports usually, though not always, come with actionable recommendations—like investment ideas you can actually use.
Understanding Research Reports
You should know that research reports come from various sources, from market research firms to in-house teams at big organizations. In the investment world, the term typically means sell-side research, which is the investment analysis produced by brokerage houses. This kind of research gets shared with both institutional and retail clients of the brokerage that creates it. On the other hand, buy-side research—from pension funds, mutual funds, and portfolio managers—is generally kept internal and not shared outside.
Financial Analyst Research Reports
Financial analysts produce these reports to back up specific recommendations, such as whether you should buy or sell a security or look into a certain financial product. For instance, an analyst might draft a report on a company's new offering, including key metrics like how many years the company has been operating, names of major stakeholders, and stats on the current market they're in. You'll also find details on overall profitability and how the funds will be used.
Research Report Impact
If you're into the Efficient Market Hypothesis (EMH), you might question the real value of these professional analysts' reports, thinking investors put too much faith in their conclusions. It's hard to draw a firm line because exact comparisons aren't straightforward, but there are research papers that provide empirical evidence showing these reports do have value. Take one paper that looked at the market for investments based in India and the analysts covering them—it was published in the March 2014 issue of the International Research Journal of Business and Management. The authors found that analyst recommendations do make an impact and benefit investors, at least for short-term decisions.
Conflicts of Interest
Some analysts are unaffiliated, meaning they conduct independent research to arrive at a fair recommendation with little worry about the outcome. But others are directly or indirectly tied to the companies they report on. These affiliated analysts might prioritize making sure their reports show clients in a positive light. Plus, if the analyst is personally invested in the company, they could have a motive to steer clear of anything that might lower the value of those securities.
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