The Impact Of Conflicts Of Interest On Analysts' Predictability

In the security market, analysts have more comprehensive information and analytical ability than investors, so they are important players of securities market in China. While they are also an interest group, their behaviors are influenced by various factors. Compared with western countries, China’s stock market has its own characteristics. Therefore, research security analysts can make contribution to both academic and industrial world.Through gathering, selecting and analyzing information, financial analysts will give an investment recommendation as buy, sell, etc.. However, whether these recommendations are objective and valid? Can economic environment have an impact on analysts’decision-making? These problems are not only related to the reputation and development of security analysts, but also to the decisions and interests of investors. Also, they are the purpose of this study.This paper collected recommendations on34companies which occurred product safety and pollution events during2010and2012, the sample range from two months before negative exposure event to two months after. Through several statistics methods, we test whether brokerages tracking, analysts tracking, owner or underwriter relationship, fund trading information have influence on analysts’independence, and whether recommendations have investment value.The results found that:analysts are optimistic, most of them suggest buy; these interest factors have something with analysts’independence, dependent analysts perform better than independent ones; analysts tracking, owner or underwriter relationship makes security analysts worse than brokerages tracking and fund trading information; analysts’recommendations have short-term guidance value after negative exposure events.At last, I made some suggestions. It includes:regulate the security market, raise the capability of analysts, strength investors’investment philosophy and self-protection consciousness.