The Impact Of Analyst Report Rating On Excess Earnings

The security analyst are playing an essential role in secondary stock market,they are not only providing customers with necessary information about corporations and stocks,but also improving the efficiency mobility of information in the market.Various useful information could be analyzed and judged by institutional investors,who prefer to make the right investment choices and earn higher returns.Nevertheless,the analysts may not be able to provide objective suggestions or assure the same fairness research findings due to various reasons,and this will bring potential risk and damage the benefits to the minority investors.Additionally,because the minority investors are not professionals and lack both theoretical and practical knowledge,they are more dependent and more likely to make their investment transactions according to the analysts' advice.How to make use of the information,make rational judgment and obtain excess returns while at an information disadvantage deserves considerations by the small and medium-sized investors.Therefore,the way to view the role of analysts objectively,comprehensively and rationally as well as the way to rightfully evaluate and use information and ratings given by the analysts are of high importance.By studying how analyst ratings impact excess profits and discussing whether the analyst reports have reference significance,this paper aims at helping investors understand market volatility and seize the favorable opportunities to invest.Using data of stock rating changes published by Chinese analysts in Reiss database from January 1,2010 to June 30,2018 as samples,this paper analyzes how characteristics like stock volatility react to stock rating changes,does research in the understanding characteristics of rating changes that have significant impact on the company's stock price in the aspects of rating and stock traits and studies the impact of these characteristics on the change of rating.Based on the Logistic model,by verifying multiple relations between rating changes and short-term stock excess profits,results have shown that for short-term window(T-1,T+1)and(T-2,T+2),variables like rating and stock characteristics of analyst rating changes all contribute to the price fluctuations of the stock being analyzed.In terms of rating characteristics,the higher the market value of the security companies,the stronger their research power,the more new wealth listed by analysts before the publication of research report and the more different the ratings are from consistent ratings,the more excess returns are affected by rating changes.In terms of stock characteristics,for corporations with more potential growth,lower book value,little attention from the analysts and relatively low volatility in the early phase,short-term excess returns from these companies are more affected by analyst rating changes.