Research On The Investment Value Of Buy-side Analysts’Recommendations

Securities’ analysts usually work in the brokerages, investment bankings, independent advisory institutes or mutual fund companies, insurance companies, private fund companies. Sell-side analysts work in the brokerages, investment bankings, independent advisory institutes and buy-side analysts work in mutual fund companies, insurance companies, private fund companies. There are significant differences between buy-side analysts and sell-side analysts include the form of getting paid and research reports publicly available or not. Thus, the conclusions of sell-side analysts can’t automatically apply to the buy-side analysts.However, since the buy-side analysts’ research reports are not publicly available, it’s difficult to do academic research on the buy-side analysts. If we want to do some research on the investment value of buy-side analysts’ recommendations, we have to obtain the samples via indirect channel.As the first paper on the buy-side analysts in China, this article assumes that all the mutual funds’ major buying and selling operations are on the basis of buy-side or sell-side analysts’ research. After excluded sell-side analysts’ recommendations, I consider whether the remained recommendations which are solely made by the buy-side analysts can lead to excess return by using event study and market adjustment model. CAPM, Fama-French three-factor model and Carhart four-factor model.Conclusions are:(1) buy-side analysts’ buy recommendations don’t contain private information;(2) sell recommendations contain private information; and (3)It needs about8months for China’s stock market to absorb sell recommendations’ private information since China’s stock market lacks the short selling institution for long term. The first and second conclusion are just the reverse of the conclusions on sell-side analysts.China’s Share Segregation Reform, new Accounting Standards for Business Enterprises of China, and calendar effects don’t significantly interfere aforementioned conclusions. The main innovations of this article are:(1)this article maybe the first paper on buy-side analysts of demestic academic research;(2)this article presents an indirect method for obtaining samples;(3)some conclusins are just the reverse of the conclusions on sell-side analysts.