Do Fund Equity Affiliated Analysts Damage Stock Market Information Efficiency——An Evidence Based on Stock Price Synchronicity

Abstract

Abstract:

Considering that China's stock market information efficiency needs to be improved, and the rapid rise of sell-side research is inseparable from the magnificent growth of fund industry, this paper explores whether equity affiliation (brokerage firms owning funds' shareholding), a common relationship between analysts' brokerage firms and funds, could have an impact on stock market information efficiency. Our findings show that firms with more equity affiliated analyst coverage have a lower level of stock price synchronicity; when shareholder funds demand more firm-specific information, fund equity affiliated analyst coverage further reduces the synchronicity level; devoting more energy to site visits is an important way for equity affiliated analyst to reduce stock price synchronicity, and lastly, equity affiliated analysts provide more accurate earnings forecasts, ruling out the possibility that they generate noise thus decrease the stock price synchronicity. This paper adds to the literature on the relation between analysts and funds, and between analysts and market information efficiency. The research provides an insight into the information role that equity affiliated analysts play, and has implication on impelling analysts to provide higher-quality information service for the market, so as to promote stock market information efficiency.

Key words: fund equity affiliation, stock price synchronicity, analyst coverage, site visits

Yi Zhihong, Shen Danlin, Jiang Xuanyu. Do Fund Equity Affiliated Analysts Damage Stock Market Information Efficiency——An Evidence Based on Stock Price Synchronicity[J]. , 2018, 30(8): 3-15.

References

[1] Morck R., Yeung B., Yu W. The Information Content of Stock Markets:Why Do Emerging Markets Have Synchronous Stock Price Movements?[J]. Journal of Financial Economics, 2000,58(1-2):215-260
[2] Jin L., Myers C. S. R² Around the World:New Theory and New Tests[J]. Journal of Financial Economics, 2006,79(2):257-292
[3] Mola S., Guidolin M. Affiliated Mutual Funds and Analyst Optimism[J]. Journal of Financial Economics, 2009,93(1):108-137
[4] 姜波,周铭山. 参股基金公司持股与分析师乐观性[J]. 财经研究, 2015,41(1):118-131
[5] Firth M., Lin C., Liu P., et al. The Client Is King:Do Mutual Fund Relationships Bias Analyst Recommendations?[J]. Journal of Accounting Research, 2013,51(1):165-200
[6] Gu Z. Y., Li Z., Yang Y. G. Monitors or Predators:The Influence of Institutional Investors on Sell-Side Analysts[J]. The Accounting Review, 2013,88(1):137-169
[7] Hong H., Kubik J. D. Analyzing the Analysts:Career Concerns and Biased Earnings Forecasts[J]. The Journal of Finance, 2003,58(1):313-351
[8] Ljungqvist A., Marston F., Starks L. T., et al. Conflicts of Interest in Sell-side Research and The Moderating Role of Institutional Investors[J]. Journal of Financial Economics, 2007,85(2):420-456
[9] Jiang X. Y., Xu N. H., Yuan Q. B., et al. Mutual-Fund-Affiliated Analysts and Stock Price Synchronicity:Evidence from China[J]. Journal of Accounting, Auditing & Finance, 2018,33(3):435-460
[10] Crawford S. S., Roulstone D. T., So E. C. Analyst Initiations of Coverage and Stock Return Synchronicity[J]. The Accounting Review, 2012,87(5):1527-1553
[11] Irvine P., Simko P. J., Nathan S. Asset Management and Affiliated Analysts' Forecasts[J]. Financial Analysts Journal, 2004,60(3):67-78
[12] Jordan B. D., Liu M. H., Wu W. Do Investment Banks Listen to Their Own Analysts?[J]. Journal of Banking and Finance, 2012,36(5):1452-1463
[13] 金大卫,冯璐茜. 过度自信、分析师跟进与资本市场定价效率——基于R²视角的实证研究[J]. 管理评论, 2016,28(12):41-53
[14] Piotroski J., Roulstone B. The Influence of Analysts, Institutional Investors, and Insiders on the Incorporation of Market, Industry, and Firm-specific Information into Stock Price[J]. The Accounting Review, 2004,79(4):1119-1151
[15] Chan K., Hameed A. Stock Price Synchronicity and Analyst Coverage in Emerging Markets[J]. Journal of Financial Economics, 2006, 80(1):115-147
[16] 冯旭南,李心愉. 中国证券分析师能反映公司特质信息吗?——基于股价波动同步性和分析师跟进的证据[J]. 经济科学, 2011,33(4):99-106
[17] 朱红军,何贤杰,陶林. 中国的证券分析师能够提高资本市场的效率吗——基于股价同步性和股价信息含量的经验证据[J]. 金融研究, 2007,(2):110-121
[18] 姜超. 证券分析师、内幕消息与资本市场效率[J]. 经济学(季刊), 2013,12(2):429-452
[19] Xu N. H., Chan K. C., Jiang X. Y., et al. Do Star Analysts Know More Firm-Specific Information? Evidence from China[J]. Journal of Banking and Finance, 2013,37(1):89-102
[20] 伊志宏,李颖,江轩宇. 女性分析师关注与股价同步性[J]. 金融研究, 2015,(11):175-189
[21] O'Brien P. C., McNichols M. F., Lin H. W. Analyst Impartiality and Investment Banking Relationships[J]. Journal of Accounting Research, 2005,43(4):623-650
[22] 许年行,江轩宇,伊志宏,等. 分析师利益冲突、乐观偏差与股价崩盘风险[J]. 经济研究, 2012,(7):127-140
[23] Malmendier U., Shanthikumar D. Do Security Analysts Speak in Two Tongues?[J]. Review of Financial Studies, 2014,27(5):1287-1322
[24] Hutton A. P., Marcus A. J., Tehranian H. Opaque Financial Reports, R², and Crash Risk[J]. Journal of Financial Economics, 2009,94(1):67-86
[25] Yu F. Analyst Coverage and Earnings Management[J]. Journal of Financial Economics, 2008,88(2):245-271
[26] Mola S., Rau P. R., Khorana A. Is There Life after the Complete Loss of Analyst Coverage?[J]. The Accounting Review, 2013,88(2):667-705
[27] Fu R. H., Kraft A., Zhang H. Financial Reporting Frequency, Information Asymmetry, and the Cost of Equity[J]. Journal of Accounting and Economics, 2012,54(2):132-149
[28] Cheng Q., Du F., Wang X., et al. Seeing Is Believing:Analysts' Corporate Site Visits[J]. Review of Accounting Studies, 2016,21(4):1245-1286
[29] Hou K., Peng L., Xiong W., R² and Price Inefficiency[R]. SSRN Working Paper, 2006
[30] Teoh S., Yang Y., Zhang Y. R-Square and Market Efficiency[R]. SSRN Working Paper, 2009
[31] Clement M. B. Analyst Forecast Accuracy:Do Ability, Resources, and Portfolio Complexity Matter[J]. Journal of Accounting and Economics, 1999,27(3):285-303
[32] Clement M. B., Tse S. Y. Financial Analyst Characteristics and Herding Behavior in Forecasting[J]. The Journal of Finance, 2005,60(1):307-341
[33] Green T. C., Jame R., Markov S., et al. Access to Management and the Informativeness of Analyst Research[J]. Journal of Financial Economics, 2014,114(2):239-255