International Business Research; Vol. 9, No. 11; 2016 ISSN 1913-9004 E-ISSN 1913-9012 Published by Canadian Center of Science and Education 105 Impact of Number of Security Analysts in Liquidity of Brazilian Stocks Liliam Sanchez Carrete 1 , Vitor Corona 1 , Rosana Tavares 1 1 Department of Business Administration, FEA USP, Brazil Correspondence: Liliam Sanchez Carrete, Department of Business Administration, FEA USP, Brazil. E-mail: lscarrete@gmail.com Received: September 14, 2016 Accepted: September 26, 2016 Online Published: October 3, 2016 doi:10.5539/ibr.v9n11p105 URL: http://dx.doi.org/10.5539/ibr.v9n11p105 Abstract This study investigates impacts of sell-side analysts in the liquidity of firm’s shares of Brazilian Capital Markets. Liquidity hypothesis studied by Brennan and Subrahmanyan (1995), Brennan and Tamarowski (2000), Amihud and Mendelson (1986, 2000) and Amihud et al. (1997) defines that an increase in the number of analysts covering a particular stock increases its liquidity causing a positive impact on the stocks prices. This work investigates empirically whether increasing number of securities analysts impacts stock market liquidity, as observed in the American market by Brennan and Tamarowski (2000), using a sample of 179 listed stocks in the Brazilian stock exchange, BM&FBovespa. This work determines liquidity-measuring firm’s Lambda dollar derived by Kyle (1985) and then applying cross section regression of Lambda dollar as dependent variable and number of analysts as independent variable. Results indicate that stock market liquidity increased with number of securities stock analysts in favor of liquidity hypothesis. Keywords: sell-side security analyst, stock liquidity, recommendation report, information asymmetry, trading volume 1. Introduction Sell-side analysts hold a privileged position in capital markets compared to average investors. Such position is due to its close relationship with investor relations departments in order to access the most update and relevant information to develop buy and sell recommendation reports. This article has as main objective investigate the impact of sell-side security analysts in the liquidity of stocks listed in the Brazilian stock market. The relevance of this study is justified by Capital Market Efficiency Theory. Fama (1970) classified market efficiency in three different forms: weak, semi strong and strong form efficiency; each of them specifying the exactly type of information reflected in asset prices. If market is efficient in the strong form, no investor can earn excess returns using any information, whether publicly available or not, and sell-side securities analysts’ recommendation reports should not have impact on stocks negotiation. In other words if all information, without exception, are already available and reflected in the stock price and that any and all deviation from the fair price is random not presenting any pattern which offers abnormal returns to investors, then sell-side analysts do not play a significant role in the capital markets. Sell-side analysts´ goal is identify stocks to recommend investors either to buy when market price is below its fair price or to sell when market price is higher. If investors accept analyst recommendations, they believe current market prices do not incorporate all information. Several studies have rejected market efficiency hypothesis. DeBondt and Thaler (1985) and Chopra, Lakonishok and Ritter (1992) concluded that stocks that present poor performance during a given period (five years in the study) tend to get strong performance in the following period, while stocks that performed better in the previous period will be likely to present a weak performance in the subsequent period. Faced with the possibility of inefficiency presence in the capital market, security analysts are responsible to collect, interpret and analyze public information, in order to develop recommendation reports for their customers, indicating the purchasing, holding, or selling a particular stock. Ivkovic and Jegadeesch (2004) defines that sell-side analysts present two skills: analyze the publicly available and relevant information interpreting its long-term implications as well as investigate information not yet publicly available to investors and process and structure that information in order to provide their recommendation to investors. Studying the impact (positive