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The dynamics between a full-service brokerage firm and its research analysts often bears some
scrutiny on behalf of investors because it may raise ethical issues. It is well known that sell-side analysts,
employed by a broker, generally provide favorable coverage on seasoned stocks. From 1995 through 2001,
only 4% of analyst recommendations were rated "underperform" or "sell." Most recommendations issued
during that period were favorable up to "strong buy." Even after 2002, when new NASD and NYSE rules
required analysts to disclose at the end of each report the past year's ratings assigned to a stock, analyst
tendency toward optimism has persisted, and stock recommendations are still upward biased.
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