A Quantitative Analysis Of Profitability Of Securities Companies’ Research Departments In China

With the development of China’s securities market, the function of securities companies’research departments has changed from internal support to external service. Before2000, the research department, as an internal integrated service brokerage platform, is a cost center. In2001, China established the first open-end fund. From then on, institutional investors began to enter the A-share market. Serving the fund, insurance, QFII and other institutions, the research department’s focus started to change from the inside out, which lead to the era of research for commission.There are currently98research institutes of different sizes coming from different securities companies. The competition in the research seller market is more and more intense. According to statistics, as many as100,000research reports are released every year. There exists a considerable degree of duplicate effort. However, the stock market remains in the doldrums, the total commission from the funds is falling. Moreover, the commission rate is on a downward trend. Therefore, the research seller market research is facing overcapacity situation. This paper used regression analysis and data mining methods to explore the factors affecting the profitability of securities companies’research departments.To build multiple linear regression model, this paper chooses the number of analysts, of star analysts and some other potential indicators as independent variables, and the commission income from the funds as the dependent variable. The model is used to quantify the relationship between the potential impact factors and the department’s profitability. Further, the research institutes will be classified in three categories:small to medium sized, medium sized, medium to large sized. This paper analyzes each kind of the institutes using multivariate linear regression model to find out different influential factors. The overall regression results indicate that the number of analysts, the sales of funds significantly influence commission income of research institutes. For small to medium sized securities companies, the sale of funds is the most important factor affecting their commission income. For medium sized securities companies, increasing the number of analysts can significantly increase the commission income. For medium to large sized securities companies, the number of star analysts is the most important for commission income. On this basis, through in-depth data mining and statistical analysis we can figure out that the fund companies have a clear bias towards shareholders in the choice of trading seats.