Influence of Fund Relation of Analysts on Benefit and Idiosyncratic Risk in China: The Reasons Why “Fee Pressure Hypothesis” Exists

Abstract

Abstract:

This paper investigates the impact of fund relation of sell-side analysts on idiosyncratic risk and risk-adjusted return of a specific stock and analyzes the path where the impact takes place using data of stockjobbers' commission fees in China. The empirical results show that fund relation increases the idiosyncratic risk and risk-adjusted return of the stock covered by related analysts; increase of commission fee pressure increases idiosyncratic risk and risk-adjusted return.All these show that "fee pressure hypothesis" exists in China. Further, we explain and confirm that optimistic bias and the motivation of stabilizing stock price of big share-holding institutions is right the reason why "fee pressure hypothesis" exists.

Key words: analysts, fund relation, institutional investors

Wu Wuqing, Su Zihao, Jie Xiaoxiao, Chen Min. Influence of Fund Relation of Analysts on Benefit and Idiosyncratic Risk in China: The Reasons Why “Fee Pressure Hypothesis” Exists[J]. , 2019, 31(10): 23-35.

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