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Study on the influence factors and the market influence of star analysts

Author: ZhangQin
Tutor: HongJianQiao
School: Fudan University
Course: Accounting
Keywords: Analyst earnings forecasts Investment recommendation Marketreactions
CLC: F224
Type: Master's thesis
Year: 2012
Downloads: 169
Quote: 0
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Abstract


As professionals, security analysts play an important role in capital markets. With professional knowledge, sophisticated analysis skills and valuable information resources, financial analysts make earnings forecasts, set price targets and help market participants make investment decisions. Since2005, thanks to the rapid development of capital markets and a surge of institutional investors, financial analysts have gained great prominence in China. At the same time, star analysts contests, such as "New Fortune best analysts" increase security analysts’media coverage greatly and enhance security analysts’influence on the capital market.As the most authoritative securities analyst rankings in China,"New Fortune best analysts" has successfully been hosted for nine years since2003, and has been more and more influential. The title of "New Fortune best analysts" can bring security analysts not only great reputation but also the salary increase and the job promotion. Employing China security analysts’earnings forecasts and recommendation data between2005and2010as the sample, this paper explores how to become star analysts and investigate how the market reacts to star analysts’investment recommendation.This paper finds that star analysts’ forecast ability is not significantly better than that of non-star analysts. Although forecast accuracy has positive effect on the possibility of becoming star, the effect is not statistically significant. It means that earnings forecast ability is not the main criteria to select star analysts in China. This paper also finds that investment recommendation, the numbers of reports, stock coverage and experience all have great impact on the probability of becoming star analysts. The likelihood of becoming star analysts is positively related to the investment recommendation’s optimism, the numbers of reports, and working experience, while negatively related to stock coverage. Brokers also play an important part in the game. Analysts working in big houses are more likely to become stars. In addition, star analysts also have significant persistency. Compared with non-star analysts, star analysts are more likely to win the title consecutively.This paper also studies the market reaction to analysts’investment recommendation. This paper finds that star analysts’investment recommendation influence the market asymmetrically. For positive recommendations, such as "Strong buy" and "Buy", market reaction to star analysts is significantly greater than that to non-star analysts. But for non-positive recommendations, such as "Hold","Sell" and "Strong sell", star effects don’t seem to exist. Market reaction to star analysts is even less than that to non-star analysts. That is, investors have greatly recognized star analysts’ability in positive recommendations, but not confident in star analysts’ ability in non-positive recommendations.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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