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Analyst’s Ability, Media Selection and Investor Interests: Evidence from China

Research paper by Purpose The purpose of this paper is to find out whether the election of star analysts leads to the conflict of interests between analysts\institutional investors and individual investors. And then, further investigate how the election results to influence the individual investors’ decision-making. Design/methodology/approach Given the fact that earning forecasts and stock ratings are the most important foundations for the investor’s investment decision, the authors investigate the relationship among the earning forecasts, abnormal returns and the election of star analyst. This paper further analyzes the impact factors on investors’ decision. The data used in this paper for star analysts’ information, analysts’ forecast and recommendations, as well as stock performances related data are from 2005 to 2012. Findings This paper finds that mass media cannot select

Indexed on: 12 Jan '17Published on: 07 Jan '17Published in: China Finance Review International



Abstract

China Finance Review International, Volume 7, Issue 1, February 2017. Purpose The purpose of this paper is to find out whether the election of star analysts leads to the conflict of interests between analysts\institutional investors and individual investors. And then, further investigate how the election results to influence the individual investors’ decision-making. Design/methodology/approach Given the fact that earning forecasts and stock ratings are the most important foundations for the investor’s investment decision, the authors investigate the relationship among the earning forecasts, abnormal returns and the election of star analyst. This paper further analyzes the impact factors on investors’ decision. The data used in this paper for star analysts’ information, analysts’ forecast and recommendations, as well as stock performances related data are from 2005 to 2012. Findings This paper finds that mass media cannot select analysts with high forecast accuracy, and then misleads investors. It demonstrates that the analysts with poorer forecast ability and more optimistic stock recommendations are more prone to be entitled as star analysts by mass media,and these titled star analysts tend to show a poorer performance. Therefore, the star analyst are worsens investors’ cognition on analysts forecast ability and then misleads investors’ decision-making. Originality/value This paper supports a new perspective of the role of mass media in financial market, which is different from existed studies.