Whose money is smart? Individual and institutional investors’ trades based on analyst recommendations |
| |
Institution: | 1. Department of Accounting and Finance, Lancaster University, UK;2. Glorious Sun School of Business and Management, Donghua University, China;3. International College, Renmin University of China, China;1. Dept of Health, Policy & Management, Columbia University, United States;2. School of Economics and WISE, Xiamen University, China;3. Cheung Kong Graduate School of Business, China |
| |
Abstract: | This study explores how institutional and individual investors respond to analyst recommendations. Using a unique account-level trading dataset taken from the Shanghai Stock Exchange, we obtain direct evidence to show that (1) active institutional investors are significantly net buyers (net sellers) on “strong buy” and “buy” (“hold” and “sell”) recommendations; (2) active institutional investors condition their trades based on the buy-side pressure of analysts; (3) institutional investors earn abnormal returns by incorporating analysts’ buy-side pressure into their trading reactions to analyst recommendations; and (4) individual investors, in contrast, exhibit abnormal trade reactions opposite to those of active institutional investors. Our results are robust to alternative measures and different specifications. This study provides evidence that active institutional investors are more sophisticated processors of information and provides support for regulators’ concerns about the sub-optimal investment decisions made by individual investors who are unaware of the potential conflicts of interest analysts may face. |
| |
Keywords: | Analyst recommendation Individual/institutional investors Buy-side pressure |
本文献已被 ScienceDirect 等数据库收录! |
|