An Analysis Of Predictive Ability Of Securities Analysts’ Reports In China

Securities analysts’ reports provide investors with clear investment advice through "buy","neutral""sell" rating. Do analysts’ recommendations have predictive ability? In other words, whether investors can gain superior profits by following analysts’recommendations, this issue has long been concerned by investors and researchers.In order to test the predictive ability of the Securities analysts’ reports, firstly, this paper analyzes the main factors which may affect analysts’ predictive ability, then using event study tests the overall predictive ability of Securities analysts’reports based on a sample of81512research reports released by the domestic securities companies from2006to2011. Finally test analysts’ predictive ability under different market backgrounds, different Securities companies and different analysts.This study finds that Securities analysts’reports have predictive ability on the whole, the actual return rate of the stock conforms analysts’rating. However, there is no accurate corresponding relationship between the superior profits and the intensity of analysts’ rating, study shows that the reasons for the predictive ability are various, the predictive ability of "buy" and " increase " rating come from the information hypothesis, but the predictive ability of "reduce" and " sell " is mainly due to the price pressure.When divided the market background into bull market, banlance market and bear market, this study finds optimistic rating ("buy" and " increase ") has best predictive ability in banlance market, has similar predictive ability in bull and bear markets, pessimistic rating("reduce" and " sell ")also has best predictive ability in banlance market, followed by bear market, has worst predictive ability in bull market,"neutral" rating has similar predictive ability under different market background. When Categorized reports according to the securities company rating, this study finds class AA securities companies can impact the stock price through its own market influence in the short term, induces price changing according to the stock rating, class A and B securities companies’ different stock rating have equal predictive ability, class C securities companies have worst predictive ability among all the securities companies, When Categorized reports according to analysts’s reputation, this paper finds famous analysts’ optimistic and pessimistic rating have stronger influence to the stock market than the unfamous analysts’ rating, however, this influence become weak in one month, famous analysts and unfamous analysts show similar predictive ability after one month.