Whether Securities Analysts Can Effectively Reduce The Toxicity Of Order Flow

In recent years,with the gradual maturation of the securities market,China has made major breakthroughs in policy supervision,investment,and financing of listed companies.On the other hand,however,the development of security market also gave rise to the asymmetry of stock transaction information and informed transactions.The existence of informed transactions not only hinders the healthy development of China's securities market,but also seriously damages the interests of investors,especially small and medium investors.In market-quote-driven securities markets,market makers are the major providers of liquidity in the securities market.When market makers trade with informed traders,they cannot realize that they are taking losses while providing liquidity to the market.Foreign scholars believe that such trade order flow is toxic.Combined with the actual situation in China,the numerable investors are the providers of liquidity in the securities market.Order flow toxicity can not only damage the interests of ordinary investors,cause serious interference with the trading order of securities market,but also do harm to the long-term development of the securities market transactions,by breaching the principle of fair and open.Although China's securities regulators have stepped up efforts to monitor the informed transactions and published a series of policies,the informed transactions continued to occur frequently.On the one hand,as a professional market information intermediary,securities analysts with solid professional background can professionally interpret the basic information of listed companies and industry information,which are collected through legal channels,broadening the investment channels of small-sized investors,and reducing the information acquisition costs of the entire security market.On the other hand,as an independent third-party service organization,analysts can form an excellent external supervision of the listed company by effectively suppressing the negative earnings management activities in the process of information collection,analysis,and organization.Academic research shows that following analysts can effectively increase the information content of listed companies' stocks and reduce the information asymmetry in stock trading,thus promoting the healthy development ofChina's securities market.Furthermore,securities analysts accelerate the transfer efficiency of market information while providing professional investment advice to investors,increasing the efficiency of ordinary investors in obtaining the latest information of listed companies.This paper uses the VPIN value of the transaction volume informed transaction probability to measure the percentage of informed transactions in the stock exchanges of listed companies in China.And we use the stock trading data of Shanghai and Shenzhen stock exchanges and SME listed companies from 2010 to 2016 as sample data in order to investigate whether following analysts can effectively reduce the toxicity of order flow.The empirical analysis result shows that the securities analysts can indeed reduce the order flow toxicity in the stock trading of listed companies in China,and that with the increase in the number of securities analysts following,the order flow toxicity in stock trading is smaller.In the final part of the paper,we come up with several suggestions to all parties involved in the security market,considering the empirical conclusions and China's security market development.