FinancialAnaly

Here's a good ethics question you won't see:

Analyst A works for a sell-side shop. His bank gets all the trading flow on XYZ and they did a few deals with XYZ so if you want to know what XYZ is telling analysts behind the scenes, you've gotta talk to Analyst A.

Analyst B works for a buy-side shop. Analyst B does generally good work but realizes that in the end, nobody cares whether his analysis was right or wrong - only that the market went in his direction when the quarterly #'s were released. So getting the right analysis is not as important to Analyst B as getting Analyst A's opinion is.

Analyst B calls Analyst A to discuss the fun times they had when the worked together at shop ZZZ. After chewing the leather for some time, Analyst B asks Analyst A "how his numbers are looking for the upcoming quarter."

Analyst A proceeds to discuss what everybody already knows about the earnings model that he has released into the community (which was important, because in order for his numbers to look relatively good, everybody else's guestimates need to approximate his). He then goes on to note that his numbers on figure "UMMM" were too high; he was "thinking about lowering them - maybe." Of course, figure "UMMM" represents a material input into the model and by changing it, Analyst A will be making a significant revision to his overall estimate.

Analyst B thanks Analyst A for his time, then proceeds to call Analysts C, D, E, F....Z to inform them, in order of who helped him out the most in the past, of Analyst A's upcoming "changes."

Question: Spot the ethics violation.

Bonus Question: Approximate how close to a real-life situation this ethics example was, and how likely it will be that you ever see it on a test.



Edited 1 time(s). Last edit at Monday, June 7, 2010 at 04:23PM by cgeorgan.