Influence Of Market Situation On Investment Ratings And Earnings Forecast Accuracy

Factors influencing the validity of investment ratings of securities analyst and its earningsforecast accuracy have been the focus of academic research. However, there are few referencesto the market situation influence on the released information from securities analyst in theliterature. This paper will explore this issue in depth.This paper selected the data from June7,2005to July5,2010, which experienced two bullsand two bear markets. Using the method of event study and multivariate linear regression tomainly study in different market situations, whether there is difference between validity ofsecurities analysts’ investment rating, and whether marker trend will influence the accuracy ofsecurities analysts’ earnings forecast. The purpose is to help investors to better understand anduse the released information from securities analyst, but also conducive to promoting theresearch on securities analyst in academic world.Research results show that the market situatio are influential in both investment ratings andearnings forecast from securities analysts. When investor refers to the information fromsecurities analysts, the market situation is also one of the factors to be considered. By the test ofevent study method, evaluation issued by securities analysts are remarkably effective in differentmarket situations, and can obtain short-term excess cumulative returns, but the independentsamples t-test shows that in the bull market situation, stock of "buy" rating is with highercumulative excess return. Also, according to the results of multiple linear regression analysis, inthe bull market situation, error of earnings forecast issued by securities analyst will be smallerand more accurate. The conclusion shows, information released by the securities analyst is moreeffective in bull market, further, stock of "buy" rating issued by securities analysts has moreinvestment value in the bull market.