Research On The Security Analysts' Earnings Forecasting And Stock Recommendation

Security analysts who join the listed companies and the investor play an important role in the capital market. They collect all sorts of information related to listed companies and make advices to investors which perform a big role in alleviating asymmetry of information. This paper analyzes Chinese security analysts'earnings forecasts and stock recommendation by using descriptive statistics, event study and the linear regression in order to find the characters and their causes behind the earnings forecasts and stock recommendations. Firstly, by using descriptive statistics analysis we find that the earnings forecasts and stock recommendations made by security analysts in China are over-optimistic. A lot of security analysts give "positive" recommendations in the earnings forecasts and analyst stars are better than non-star analysts. In most cases, security analysts give "buy-side" recommendations. Moreover, " neutral" recommendations indicate security analysts are not sure about the future stock market, but express "sell-side" recommendations in practice. We interpret these as single market in the prophase of Chinese stock market and the complicated interest relations the analysts face. Due to underestimate of Subprime Crisis, the deviation of security analysts'earnings forecasts and stock recommendations obviously increase in 2008. Secondly, by event study analysis we find that the information of earnings forecasts and stock recommendations leak out before issued publicly. People who obtain the information do reverse investment manipulation in the public day, causing the investors who enter in the day only obtain negative cumulative abnormal return. This part of research confirms "neutral" recommendations express "sell-side" recommendations in practice. Event study also approves accurate earnings forecasts correspond to instead of serving to accurate stock recommendations. Sort by analyst stars and non-star analysts, the research draws conclusions that stock recommendations make influence on the trend of securities market, and analyst stars'influence is even greater. Sort by Shanghai and Shenzhen stock markets, there is no marked difference in information publicity. Thirdly, the linear regression tests express the factor of analyst stars, the number of institution trace analyzed, the scale of listed companies and its predictability of operational information are positively correlated with the accuracy of security analysts' earnings forecasts, however, the time difference between the day when security analysts' research report are published and the day when the prediction terminated is negatively correlated with the accuracy of security analysts' earnings forecasts. In other words, the greater the time difference is, the larger the cumulative abnormal return is. The research also expresses that accurate earnings forecast brings the cumulative abnormal return down, which indicates that to reduce information-symmetry analysts can play a momentous role. The above-mentioned are the contents and conclusions this paper researches. At last, we believe accurate earnings forecast is corresponding to stock recommendation, which will promote the information content of stock price, and will make the market efficiency furtherance.