Equity research – the Vital Step to Take before Investment
Added: (Sat Oct 10 2009)
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The market is dependent over equity research to get insightful information on stocks and their un-biased valuation. Stocks are misinterpreted due to inefficiencies caused by lack of knowledge. To get valuation estimates, analysts spend huge amount of time in conducting equity research to analyze stocks and its industry. Equity research is crucial because it helps every individual investor to understand the stocks by filling information gaps.
There is a huge difference between Wall Street research and other researches. Wall Street only focuses on highly liquid and big cap stocks and pays no attention to the bulk of publicly-traded stocks.
In this process, Wall Street creates an information gap which is filled by the other research firms. These research firms deliver research on the stocks that have been ignored by Wall Street. Investors ignore these independent researches to avoid paying higher commissions. It simply reflects that independent equity research firms are the key source of the information for the majority of stocks. Investors are hesitant to go there, because they are not aware of what they are paying for. Although individual research is valuable, investors are still not ready to pay for it because under traditional system they expect brokerage houses to pay for it and brokerage houses provide that to make clients. These brokerage houses hire their own analysts to get a competitive advantage over rivals. Sometime, they pay handsome amount to independent researchers to get information.
Market efficiency has increased after the introduction of fee-based stock researches. It has also filled the gap between investors and other companies who believe that Wall Street will not supply research on their stocks. This fee-based equity research is funded by the subject company and that is why information is provided to huge number of people with no charge. This is the perfect solution for imbalance caused by lack of coverage due to investors’ unwillingness towards paying for the research.
Submitted by:Ayaz Haider Find out more.