When "Strongly Recommended" Encounters "Margin" - A New Perspective Of Investment Conflict Of Securities Dealers And Investment Strategy

Under pressure of transformation, the rapid development of the margin trading business is becoming an important breakthrough for broker to find new profit growth point. Will the margin factors be taken into account when the brokerage analysts make recommended ratings? No previous studies focus on this yet. When putting the yield of recommended rating before and after "becoming margin" into comparison, this paper finds that there’s significant difference between the first series of margin and the last two. Empirical studies confirm two opposing incentives between analysts recommended rating and the margin: for the high balance proportion of margin, recommended ratings are always ignoring objectivity to quickly improve the net interest income of brokerage margin business; however, recommend ratings take objectivity into consideration for new entrants to win the trust of customers, which motivates the new margin business in the fierce competition to obtain a relatively favorable position. The two incentives are reciprocal as balance proportion of margin shifting, varying from each other on different series.On this basis, this paper sets "the number of analysts who give strong recommendation to the first series of margin in the same time" as a pre-determined contrarian indicator, which makes a strategic decision to go long or short. This strategy demonstrates significant profits on both relative yield and absolute yield, regardless of transaction costs.