Research On The Investment Value Of Security Research Institutions’ Stock Rating

Starting from the establishment of the Shanghai Stock Exchange in1990, the Chinese stock market has experienced twenty years’rapid development. A large number of security research institutions have emerged. Security analyst industry also have ushered a golden age. Security analysts have research on the macroeconomics, the industries and the public corporations by collecting information. They give earning forecasts and stock evaluations on the tracking corporations, provide invest advice to the investors by giving investment ratings to listed companies, such as "buy","neutral" or "sell"Do investment advice from security analysts has practical reference value has been the focus topic of theoretical and practical circle over the years. An event study method was used to investigate the abnormal returns of stock rating samples of six security research institutions from August2010to July2011, in order to examine the reference value of stock rating from security analysts. At the same time, this thesis designed a performance evaluation system to rank the accuracy of recommendations of securities research institutions. On this basis, standing on an investor’s perspective, this thesis tried to build a portfolio based on the recommendations of six securities research institutions from August2011to July2012, in order to find the possibility that the stock prediction ability can be transformed into the reality investment value.Our research shows that due to the interest conflict among the security analysts, institution investors and listed company, the stock rating on the security research institution report should be lowered a rating. Also, the ability to recommend stocks of the security research institution doesn’t have a significant relationship with its influence. Investment portfolios constructed on the basis of analysts’recommendations can obtain excess return, even taking into the trade cost. Overall, there are some deviations on the stock rating of security analysts, but it also can bring some reference value to investors.Finally, we made a number of recommendations such as regulate the domestic securities market, strengthen the "firewall" system, improve the information disclosure mechanism, strength the analyst ethics.