FINANCIAL ANALYST FORECASTING

Financial Analyst Forecasting and Chinese Stock Market

Abstract

This dissertation highlights an arrangement of research examining the role of financial analyst forecasting and Chinese stock market. The study builds on the viewpoints provided by Schipper (1991) and Brown (1993).

Table of Contents

CHAPTER 1: INTRODUCTION5

Introduction5

Aims and Objectives8

Structure of the Dissertation8

CHAPTER 2: LITERATURE REVIEW11

Perspectives from Schipper (1991) and Brown (1993)11

The Role of Financial Analysts in Capital Markets14

Analysts' Decision Processes15

CHAPTER 3: CHOICE OF METHODOLOGY35

The Information Content of Analyst Research49

CHAPTER 4: APPLICATION OF METHODOLOGY60

CHAPTER 5: RESULTS64

Market and Analyst Efficiency64

Analysts' incentives and behavioural biases65

Suggestions for Further Research Related To Analysts' Incentives and Behavioural Biases66

Questions related to the regulatory environment68

CHAPTER 6: DISCUSSION AND RECOMMENDATIONS70

Research Design Issues73

Suggestions for Further Research Related To Research Design Issues74

CHAPTER 7: CONCLUSIONS, CRITIQUE, AND LESSONS LEARNED76

REFERENCES80

BIBLIOGRAPHY109

List of Tables

Table 1……………………………………………………………………………………………………………………………………18

Table 2……………………………………………………………………………………………………………………………………30

Table 3……………………………………………………………………………………………………………………………………44

Table 4……………………………………………………………………………………………………………………………………108

Table 5……………………………………………………………………………………………………………………………………114

Table 6……………………………………………………………………………………………………………………………………122

Table 7……………………………………………………………………………………………………………………………………124

Chapter 1: Introduction

Introduction

This study provides practice and classification of research examining the role of financial analyst forecasting in Chinese stock market. The rise of China's stock market during the 1990s was nothing short of breathtaking. For more than 30 years after 1949, China was a centrally planned economy in which virtually all enterprises were state owned or collectively owned. Investments were centrally planned and funded by government fiscal grants as well as by loans from the state-owned monobank system as dictated by the government's central credit plan. In the late 1980s, as part of enterprise reforms that took place during China's gradual transition to a market economy, local governments in China started experimenting with selling shares of collectively owned enterprises directly to domestic individuals in order to raise equity capital. Curbed trading of enterprise shares soon began and was quickly followed by over-the-counter (OTC) trading in more managed but still informal exchanges. In 1991, two stock exchanges, one created by the Shanghai municipal government and the other by the Shenzhen municipal government, were launched, with the central government's formal approval. Between 1992 and 2003, the market raised a total of 796.79 billion yuan of equity capital. At the end of 2003, China's stock market had 1,287 listed enterprises and more than 70 million investor accounts (CSRC 2004).

Stock market development in China took off in the early 1990s, roughly at the same time as it did in other transitional economies (Pistor, Raiser, and Gelfer 2000). But China's stock market is performing better than the markets of most other transitional economies, when comparisons are made using standard measures of stock market performance, including the number of listed firms, market capitalisation, liquidity, and fundraising capacity (Pistor and Xu 2005: 191). By the end of 2000, while many stock markets in transitional economies were plagued by low market capitalisation and low liquidity, China's total stock market capitalisation had swelled to more than US$507 billion. That made China's stock market capitalisation the second largest in Asia, after Japan's.

China's stock market had three unique features that made its rapid development unique and interesting. First, the government used it largely as a fundraising vehicle for funding state-owned enterprises ...