An Empirical Study On The Ability Of The Chinese Security Analysts' Stock Recommendations

The China's A-share market was launched at Dec.19th,1991, and had experienced astonishing levels of growth. Even so, it is often viewed to be the emerging market for its immature. It is bad for the medium and small investors who are lack of the knowledge of rational investment for the reason that the market is too risky to research and invest in. As such, there should be a significant role for security analysts providing stock recommendations because they can give the accurate comprehension of the sorts of information. Why the security analysts are existing on the market is that they have the responsibility to help the investors and maintain the efficiency. Do analysts'recommendations have investment value? Can they guarantee their independency, impartiality or efficiency? The two questions are which the paper focuses on.The paper takes the event study methodology to research the security analysts'ability. The sample data is a week's stock recommendation data from the"China Securities Journal". The part of empirical research is organized as follows:it firstly analyzed entirety of the data sample; I next partitioned the whole time into the bull period and bear period to find the difference between the two periods; finally, the paper partitioned these recommendations into those issued by securities firms and those provided by independent research firms. The results revealed that there was a remarkable positive abnormal return of the Chinese analysts'stock recommendations before these recommendations went into public, and the stocks which were be recommended could not bring extra earnings compared with that in developed markets. I also found that during the bear market the average weekly extra return exceeded that during the bull market. In addition, the average weekly extra return to securities firms by recommendations exceeded that of independent research firms. Conclusively, I hold the opinion that the Chinese security analysts do not keep the independency, impartiality and efficiency. Their ability of stock recommendations can not outperform the other common people.