Xiong Xiong Tianjin University, Professor

Transcription

1 Xiong Xiong Tianjin University, Professor Professor Xiong Xiong is a PhD supervisor in College of Management and Economics, Tianjin University He also serves as dean of Institute of systems engineering. He obtained his PhD degree in Management Science in the spring of 2002 from Tianjin University. His research interests include: financial engineering and financial risk management, computational finance, business development and financial strategy. Professor Xiong Xiong published more than 80 academic papers in the domestic and foreign academic journals, and also published 2 monographs. In addition, he carried out and accomplished more than 10 important research subjects of National or Provenance Level, such as National Natural Science Fund On the effect of oversea Chinese stock derivatives to domestic stock market. He is currently carrying out Key Project of National Natural Science Fundation: on the theories and practices of financial innovation and risk analysis in the era of big data. He has obtained 3 provincial and ministerial level academic awards, enrolled in the new century talent support program of China Ministry of education in 2007, and obtained Tianjin Youth Science and technology award in Professor Xiong visited State University, San Marcos and University of Warwick as a visiting scholar. He currently serves as vice deputy secretary of Chinese society of systems engineering; Director of financial systems engineering committee, Deputy Director of Youth Work Committee; Deputy Director of Youth Work Committee of Chinese Society of Optimization, Overall planning and Economical Mathematics; Standing director of decision branch of China Operational Research Society; Vice Chairman of Economics risk branch of Chinese Association of Quantitative Economics; individual member of Tianjin Public Diplomacy Association; Director of Tianjin Institute of Finance; Consultant of Advisory Committee on decision making of Ezhou, Hubei province; Visiting professor of Dalian Maritime University; Reviewer of many high level academic journals including Management Science (in Chinese).

2 Do analysts' recommendations affect investors' trading? Evidence from China's accounts data Xiong Xiong, Jin Zhang, Ruwei Zhao, Xu Feng College of Management and Economics, Tianjin University 1

3 Introduction Analysts' recommendations, as direct trading opinions for stocks, hold strong power in information discovery and improvement of market effciency(asquith, Mikhail, and Au (2005, JFE,) Chen, Cheng, and Lo (2010, JAE)) However, because of the existence of conflicts of interest, analysts prefer to publish optimistic recommendations for stocks holding underwriting business connections(michaely and Womack (1999, RFS), Ljungqvist et al. (2007, JFE)) 2

4 Introduction Due to the existence of information asymmetry, not all investors can identify the bias. Studies show that both individual and institutional investors are affected by analysts' recommendations in the U.S. market Small investors has relatively low ability in recognizing analysts' positive bias, and are more affected by biased recommendations (Mikhail, Walther, and Will [2007, AR]) Are individual and institutional investors in emerging markets aware of analysts' conflicts of interest? Does their trading be affected by analysts' recommendations? 3

5 Introduction Amarsoft (300380) 4

6 Literature Analysts' conflicts of interest Investor trading and biased recommendations Investor trading Classification Analysts' conflicts of interest and recommendation bias Lower returns following investment bank analysts buy recommendations than those of unaffiliated analysts. E.g. Ljungqvist et al. (2007, JFE) With regulation improvement, analysts' recommendations bias would be better. E.g. Kadan et al (2009, RFS) In emerging markets, with relatively unmature regulation system, analysts would face more pressure from their employers and produce more biased recommendationslai and Teo (2008, JFQA), and Firth et al. (2013, JAE) 5

7 Literature Analysts' conflicts of interest Investor trading and biased recommendations Investor trading Classification In the U.S. market, analysts' recommendations have effects on both individual and institutional investors Small investors prefer to follow analysts' positive recommendations (Naïve individual investors), E.g. Malmendier and Shanthikumar (2007,JFE), Malmendier and Shanthikumar (2014, JFE) Institutional investors are less affected by biased recommendations. E.g. Mikhail, Walther, and Will (2007,TAR), He, Mian, and Sangkaraguruswamy (2005, SSRN), Chen and Cheng (2006, JAAF) 6

8 Literature Analysts' conflicts of interest Investor trading and biased recommendations Investor trading Classification How to identify whether a trade is initiated by an individual investor or an institutional investor Most prior studies follow the cutoff approach proposed by Lee and Radhakrishna (2000,JFM) Cutoff approach: If the trading value is larger (smaller) than the cutoff value, the trade is initiated by institutional (individual) investor Inaccurate method. E.g. Campbell, Ramadorai, and Schwartz (2009, JFE) 7

9 Literature The U.S. market Significant profits of following analysts recommendations(womack (1996)) 8

10 Literature The Chinese stock market Profits of following analysts buy(left) and sell(right) recommendations 9

11 Literature Investors reaction to analysts reports(mikhail, Walther, and Will (2007, AR) ) 10

12 Contribution Our study extends prior studies from three perspectives Our study is conducted from emerging market perspective. Most of the prior studies focus on the U.S. market. The large individual investors and institutional investors are not affected by analysts' recommendations in China, which is different from the U.S. market With the account data, we show the trading profits by following large individuals and institutional investors abnormal trading, which is not mentioned in other papers. We provide three explanations to the results. Especially, we show the inaccuracy of cutoff approach may explain the different results in the China and the U.S. market. 11

13 Data Data source: Shanghai Stock Exchange Investor types Individual Large investor: Yearly trading volume > 5 million CNY Small investor: Yearly trading volume <= 5 million CNY Institutional Research institutional investor: Mutual Fund, QFII and Propriety Trading Non-research institutional investor: Insurance, Pension Fund, Asset Management, and General Institutions 12

14 Data Data source: Shanghai Stock Exchange Stock sample:100 stock Sample period: to Selection criteria:no trading halt; Stratified Random Sampling Method Analysts recommendations 9,196 recommendations strong sell(-2) sell (-1) natural(0) buy(1) strong buy(2) Star Analysts(Crystal Ball Reward) 13

15 Data Description of individual and institutional investors 14

16 Data 15

17 Data 16

18 Method Abnormal trading volumes Following Mikhail, Walther, and Will (2007, AR), the abnormal trading volumes of each kind of investors are calculated as: 17

19 Method To study the question of what kind of investor is affected by recommendations, we test the regression as follows: AbnormalVolume is the abnormal trading volume,recom is the recommendations of analysts,inssize is the size of brokers,insstar is the star analyst dummy,firmsize and others are control variables 18

20 Method 19

21 Method 20

22 Resutls Whether the individual and institutional investors trading are affected by analysts' recommendations? Whether the results from China stock market is consistent with that in the U.S. market? 21

23 Resutls Individuals' Abnormal Imbalanced Trading and Analysts' Recommendations 22

24 Resutls Institutions' Abnormal Imbalanced Trading and Analysts' Recommendations 23

25 Resutls Individuals' Abnormal Buying (Selling) and Analysts' Recommendation 24

26 Resutls Institutions' Abnormal Buying (Selling) and Analysts' Recommendation 25

27 Resutls The results are different with that of in the U.S. market The results of small individuals are same with that of in the U.S. market Large individuals and institutional investors are not affected by analysts Explanation 1: Analysts have more conflicts of interests in the China stock market Whether investors can earn positive excess returns if they follow analysts' buy or sell recommendations? 26

28 Resutls Cumulative Returns Associated with Strong Buy & Buy Recommendations 27

29 Resutls Cumulative Returns Associated with Strong Sell & Sell Recommendations 28

30 Resutls Analysts have more conflicts of interests in the China stock market Follow analysts recommendations cannot get higher returns than risk free rate 2.4% for buy recommendations, 2.2% for sell recommendations, 4.44% for risk free rate Which is much higher in the U.SU market 7.46% for buy recommendations, 11.30% for sell recommendations Explanation 2: Institutional investors have more information advantages Whether investors can earn positive excess returns if they follow institutional investors abnormal trading? 29

31 Resutls Cumulative Returns Associated with Institutions' Abnormal Buying 30

32 Resutls Cumulative Returns Associated with Research Institutions' Abnormal Buying 31

33 Resutls Cumulative Returns Associated with Non-Research Institutions' Abnormal Buying 32

34 Resutls Cumulative Returns Associated with Institutions' Abnormal Selling 33

35 Resutls Cumulative Returns Associated with Research Institutions' Abnormal Selling 34

36 Resutls Cumulative Returns Associated with Non-Research Institutions' Abnormal Selling 35

37 Resutls Institutional investors have more information advantages Follow institutional investors trading can get higher returns Research (12.1% for abnormal buy, 13.6% for abnormal sell) Non-research (10.3% for abnormal buy, 6.5% for abnormal sell) Much higher than following analysts recommendations (2.4% and 2.2%), and risk free rate (4.44%) Explanation 3: the inaccuracy of cutoff approach We may find the same conclusion with the U.S. market by using the cut-off approach instead of account data 36

38 Conclusion Using accounts data from the Shanghai Stock Exchange, we study investors' reactions to analysts' recommendations in Chinese stock market We find that small individual investors are inclined to accept analysts' both buy and sell recommendations. Large individual investors and institutional investors do not show much preference in following analysts' neither buy or sell recommendations Three possible explanations: Analysts have more bias in the Chinese stock market Institutional investors have more information advantages to following analysts reports 37

39 Thanks! 熊熊教授 博士生导师 天津大学管理与经济学部电子邮件 网站 : 38