An Empirical Study On The Investment Value Of Securities Analysts’ Stock Recommendations

With the bull market booming during2005and2007, the era of institutional investors is coming in China’s securities market. It is an opportunity for research departments in securities companies, and this opportunity opens the door for the following transformation of research business. After several years of exploration and development, the researchers have achieved a brand new field. Sell-side’s developing speed is very amazing. Here has been a rapid increase in the number of analysts, and a significant increase in commission income. There are various forms of service, such as research reports, strategy meetings, roadshows for stock recommendation. Though these activities, securities analysts become the hinge between the stock market and the investors. Because they provide the expected information about listed companies in future, which can help the investors, estimate the companies future status, and help them make decisions. All of these bring vitality to China’s capital market, and promote the effective allocation of market resources.However, stock research reports are facing the development of a bottleneck. They are lack of innovation and independent views, and’conflict of interest’ hinders its development. Do analysts’recommendations have investment value? Whether stock research reports can bring useful information to investors? These issues have long been debated by financial researchers and practitioners. The academic literature in this area for developed countries is abundant and still growing. Most of them believe that there should be a significant role for security analysts providing stock recommendations, because they can give the sorts of information. However, in China’s securities market, more and more securities analysts promulgat stock recommendations to investors from various media, and there are too much rumors. It is risky for the ordinary investors who are lack of the knowledge of Rational to invest in. Whether investors can gain superior profit by following analysts’stock recommendations? Whether the star analysts are more credible? These questions are which the paper focuses on.This paper consists five chapters, the main structure and content are as follows:Chapter1ExordiumThis chapter is an introduction, which introduces the research background and significance, and describes the content simply.Chapter2Literature ReviewThis chapter reviews the literature from both domestic and foreign researchers. In foreign cuntries, a number of empirical studies have indicated that securities analyst can provide valuable information. However, relevant studies on China are still sparse. It was not long years that securities research repaots have emerged into a profession, and correspondingly, databases for analysts’research about stock recommendations are not available until recent years. This chapter draws on the experience of both the domestic results and foreign results, analyses the inveatment value of securities analysts’stock recommendation from research report.Chapter3The relevant concepts and system backgroundFirstly, introduces the concepts of securities analysts and stock research reports. Secondly, introduces characteristics of interest when securities analysts recommend stocks. Finally, introduces the current situation of China securities analysts. It is useful for investors to understand securities analysts’responsibilities.Chapter4Empirical studyIn this chapter, by three models including Market-adjusted model, Industry-adjusted model, Market model, calculate abnormal return in the Event study. Using the data of research reports about China listed companies in2011from wind database and ifinD database, analyses the investment value of securities analysts’stock recommendation. R, EViews, EXCEL and other measuring tools and software operations are used to do price data analysis. This chapter proposes three different dimensions to the conclusions of the investment value. According to these results, we find that the stocks recommended by all of analysts generally play poor performance. But the stocks recommended by star analysts have three months investment value. We also find that the stocks which have been high attention, before recommended, have no abnormal return, and have long time investment value.Chapter5Conclusions and RecommendationsFirstly, based on empirical results, the chapter reaches the final conclusions of this paper. Secondly, based on the final conclusion of this paper, this chapter gives some advice for ordinay investors to judge the value of stock recommendations, for the securities supervisory and regulatory commission as policymaking suggestions to enhance supervising and regulating efficiency, but also for securities analysts to improve the quality of research report.The main contributions lie in:(1) The selected object is different from previous empirical studies.Previous studies selected object from newspapers as the empirical object of study. The paper selecte recommended stocks statistical data from database. The reason for this is that there are only partial selections and lack of timeliness from newspapers.(2) Since there are so few articles about grouping the stocks according to the degree of attention from analysts, this paper enriches the research.The idea for improvement:Research reportss including company reports, industry analysis reports, financial engineering reports, and macro strategy reports. As to the quality of macro strategy reports, they are not only the focus from market attention, but also the highest level of quality which security companies are longing for. This paper just does empirical analysis on company reports. As to the idea for improvement, macro strategies will be done for further discussion.