Do the Securities Analysts Play the Role of Information Competition or Information Supplement? Empirical Analysis Based on Investor Sentiment

Abstract

The purpose of this article is to investigate the role of securities analysts in Chinese stock market. Taking the earnings announcements of listed companies, analysts’ earnings forecast and analysts’ recommendations in Chinese stock markets from 2014 to 2018 as the samples, this paper explores the influence mechanism of investor sentiment on the market reaction to announcements, and investigates the influence mechanism of investor sentiment on the role of securities analysts under the framework of behavioral finance theory. On the basis of theoretical analysis, this paper empirically tests the relationship between the information content of analysts’ reports and the information content of the earnings announcements from the perspective of behavioral finance, and discusses the role of securities analysts in the stock market. The results show that during the periods of high investor sentiment, securities analysts do not demonstrate the role of information competition or information supplement. On the other hand, during the periods of low investor sentiment, securities analysts play the role of information competition or information supplement. Furthermore, after excluding the investor sentiment component of the market reaction to announcements, securities analysts do not demonstrate the role of information competition, but play the role of information supplement. The findings of this study offer new insights into the role securities analysts play in Chinese stock market, which is conducive to improving the quality of analysts’ reports, thus enhancing the efficiency of the securities market.