Research On How Analysts Influence The China Equity Market Efficiency

The objective of this paper is to analyze how analysts influence the China stock market pricing efficiency.Analysts are important information transmitting intermediary and publisher,they can influence the market price reflexing information efficiency.The fundamental information disclosed by listed companies need commented by analysts and can be converted into the investment suggestion,which are easier for investors to understand,such as earnings forecast,investment grade and target price.Analysts write research reports based on the market industry common information and company specific information and publish the report to send the information to the market.The efficiency of above procedure can directly influence the degree of how market price reflex information.We can comprehensively and objectively appraise how analysts influence the China stock market pricing efficiency through the research about analysts'influence on the above information transmitting procedure.In the chapter 1,we have reviewed the literature about Efficient Markets Hypothe-sis.We found that as the strict assumptions were released,the tests of Efficient Markets Hypothesis are converted into the event study problem that if information can be re-flected in the price promptly and effectively.Analysts are important in information transmitting mechanism,thus they can influence market pricing efficiency.We form the research frame based on the literature review.In the chapter 2,we put forward the theory model about analysts can improve the market pricing efficiency.When market is in equilibrium,the extend of price re-flect information is related with risk aversion degree,information cost and information quality.The speed of price reflects information depends on the diversity of reaction to information.Analysts help to reduce the risk aversion degree,reduce information cost and improve information quality,thus help to enhance the degree market price reflects information.Analysts also help to reduce the diversity of reaction to information,thus improve the speed of price reflects information.These two theoretical relationships provide support for subsequent empirical researches.In the chapter 3,we study the relationship between analysts number and stock price synchronicity,also the relationship between analysts number and stock price reflecting information speed.We infer the analysts' influence on market efficiency based on the regression coefficients between these relative macro and long-term variables.The study found,increasing in followed analysts number reduce long-term price synchronicity,can't accelerate reflecting fundamental information speed,but can accelerate reflecting common information speed.In the chapter 4,we study the influence of analysts' diversity on market pricing,and we can test the influence of analysts as information producer not transmitter.The studies find,in the case of without selling short,diversity can overprice the stock and stock prices reflect the most optimistic analyst's opinion,the overpricing can lead relative low return.After the implementation of margin transaction system,the pricing bias didn't converge.We infer that lack of securities to sell short is the reason.In the chapter 5,we examine analysts' capacity to process fundamental informa-tion and market's pricing reaction to the information.Firstly,we examine analysts'capacity to process earnings and related information published in fixed report and find that analysts emphasize accrual earnings and adjust earnings forecast to reflect accru-al earnings and future changes.The consistent signals issued by analysts can forecast net earnings mean-reverting trend correctly.Further studies find,the consistent signals can realize excess return,market can reflect analysts' information in 35 tradedays,but slower than that in developed market significantly.In the same time,we find investors misprice the accrual earnings,in those samples without analysts followed or consistent signals,hedged portfolios based on accrual earnings ranks also realize significant hedge return.In the chapter 6,we examine analysts' information intermediation function in list-ed companies earnings information disclosure links and we find that,after earnings information is published,analysts will adjust their earnings forecasts based on the lat-est earnings information.The adjustments send relevant information into the market,and incur abnormal return.Earnings guidance is earliest in three disclosure forms thus replaces preliminary report and fixed report in disclosing information content,and sig-nificantly lower market reaction of latter twos.The studies also find that,analysts adjust not sufficiently to the new information disclosed by listed companies.'Abnormal re-turn substitution effect' and 'analysts adjustment insufficient effect' jointly effect post earnings announcement drift.When previous market abnormal return overreacts,then current market abnormal return will reverse.When previous market abnormal return underreacts,then current market abnormal return will be proportional with analysts ad-justment ratio.Furthermore,we also find significant abnormal return before earnings information published,which means there is internal information leakage.In the chapter 7,we use both price synchronicity and event window cumulated abnormal return to research analysts' intermediation function after informed person-s' trades information disclosed.The studies find that,after informed persons' trades information disclosed,analysts' adjustment of forecast increases information content in price.Firstly,after funds holding change information published,analysts' adjust-ment of consensus will reduce price synchronicity.Secondly,after insiders' reduc-tion trade published,analysts upgrade consensus portfolio will significantly outperform downgrade portfolio.Furthermore,after fund holding change information and insiders'trade published,more analysts adjust their forecast,price synchronicity is higher,which means analysts bring more common information into stock price.The main conclusion of this paper are as follows:1,We find that,from the perspective of event study,after specific fundamental information disclosed,analysts can process correctly and timely,but underreact signifi-cantly.Market investors will response to analysts' adjustments,and produce significant abnormal return.Analysts' adjustment can bring information into market correctly,and market can response to the information correctly,therefore analysts helps to enhance market pricing efficiency.2,We find analysts' group behaviors will increase short-term price synchronicity.When many analysts perform same direction adjustment,this group behavior will bring idiosyncratic information along with common information.The diversity in analysts group will make stock price overvalue and reflect most optimistic forecast.3,Other factors affect market pricing efficiency include market institutional factors,such as margin transaction system not effectively functioning and information leakage,and investors behavioral factors,such as accrual earnings mispricing and 'overreacting short-term,underreacting long-term',and analysts behavioral factors,such as 'herd ef-fect' and 'anchoring effect'.The main improvement and innovation of this paper are as follows:1,We use an innovative research perspective and frame,and focus on specific an-alysts intermediation function.We mainly research analysts' intermediation function in earnings quality,earnings guidance and informed persons' trade etc.specific infor-mation transmitting procedure.We can exclude other interfering factors and measure analysts' influence more precisely.2,This paper creatively use analysts' forecast adjustment as an explanation to 'post earnings announcement drift effect' in China stock market.Studies find that,analysts'insufficient adjustment leading to price drift after earnings information published.In the same time,we find that when market abnormal return after guidance overreacts,market abnormal return after preliminary report will reverses.When market abnormal return after guidance underreacts,market abnormal return after preliminary report will drifts.These two factors affect price drift effect.3,This paper creatively from analysts' forecast adjustment perspective researches earnings quality information influence in China stock market.Studies find that,without analysts' influence,market will overstate accrual earnings mean-reverting effect to net earnings and undervalue stocks with high current accrual earnings,high future earnings continued growth and overvalue stocks with low current accrual earnings,low future earnings continued growth.But,analysts can identify those accrual earnings leading to mean-reverting net earnings and adjust forecast to issue signals to the market and make stock prices correctly reflect accrual earnings.4,This paper for the first time use analysts' forecast adjustment to analyze in-formed persons' trades information contents.Studies find that,without analysts' influ-ence,market will not emphasize insiders' trade,and shows no abnormal return.When considering analysts' adjustment,samples abnormal returns are significant and analysts bring insiders trade information contents into market price through adjusting forecasts.5,This paper use more precise variables to measure analysts forecast adjustment behavior and market abnormal return in event study methods.We use consensus change ratio and forecast adjustment ratio during event time window as the proxy variables of analysts' opinion change,which are better than followed analysts number in accuracy and timeliness.We use market value adjusted abnormal return to measure market re-action to new information,in order to exclude significant excess return bring by small market value and achieve a robust conclusion.