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Article: Whose Money is Smart? Individual and Institutional Investors’ Trades Based on Analyst Recommendations

TitleWhose Money is Smart? Individual and Institutional Investors’ Trades Based on Analyst Recommendations
Authors
KeywordsAnalyst recommendation
Individual/institutional investors
Buy-side pressure
Issue Date2021
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jempfin
Citation
Journal of Empirical Finance, 2021, v. 62, p. 234-251 How to Cite?
AbstractThis 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.
Persistent Identifierhttp://hdl.handle.net/10722/299056
ISSN
2023 Impact Factor: 2.1
2023 SCImago Journal Rankings: 0.927
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorKong, D-
dc.contributor.authorLin, C-
dc.contributor.authorLiu, S-
dc.contributor.authorTan, W-
dc.date.accessioned2021-04-28T02:25:36Z-
dc.date.available2021-04-28T02:25:36Z-
dc.date.issued2021-
dc.identifier.citationJournal of Empirical Finance, 2021, v. 62, p. 234-251-
dc.identifier.issn0927-5398-
dc.identifier.urihttp://hdl.handle.net/10722/299056-
dc.description.abstractThis 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.-
dc.languageeng-
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jempfin-
dc.relation.ispartofJournal of Empirical Finance-
dc.subjectAnalyst recommendation-
dc.subjectIndividual/institutional investors-
dc.subjectBuy-side pressure-
dc.titleWhose Money is Smart? Individual and Institutional Investors’ Trades Based on Analyst Recommendations-
dc.typeArticle-
dc.identifier.emailLin, C: chenlin1@hku.hk-
dc.identifier.authorityLin, C=rp01808-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.jempfin.2021.04.001-
dc.identifier.hkuros322319-
dc.identifier.volume62-
dc.identifier.spage234-
dc.identifier.epage251-
dc.identifier.isiWOS:000656796300014-
dc.publisher.placeNetherlands-

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