Political Bias of Stock Analysts and Investors’ Trades

52 Pages Posted: 4 Aug 2016 Last revised: 13 Jun 2019

See all articles by Dongmin Kong

Dongmin Kong

School of Finance, Zhongnan University of Economics and Law; Department of Finance, Huazhong University of Science and Technology

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Shasha Liu

School of Management, Jinan University

Weiqiang Tan

Hong Kong Baptist University

Date Written: June 2019

Abstract

Using a unique database that contains precise investor classifications and all transaction records for firms listed in the Shanghai Stock Exchange of China, we explore whether institutional and individual investors perceive and correct the potential analyst bias caused by political ties between brokerage firms and state-owned enterprises. We find that: 1) institutions are significantly net buyers (net sellers) on “strong buy” and “buy” (“hold” and “sell”) recommendations, while individuals trade in the opposite direction of institutions, 2) analysts release more optimistic recommendations on stocks owned by the same local government as their brokerage firms, and 3) institutional investors effectively learn and react to analysts’ recommendation bias caused by political pressure.

Keywords: Analyst recommendation, Individual/institutional investors, Political pressure

JEL Classification: G11, G14, G24, M41.

Suggested Citation

Kong, Dongmin and Lin, Chen and Liu, Shasha and Tan, Weiqiang, Political Bias of Stock Analysts and Investors’ Trades (June 2019). Available at SSRN: https://ssrn.com/abstract=2818249 or http://dx.doi.org/10.2139/ssrn.2818249

Dongmin Kong (Contact Author)

School of Finance, Zhongnan University of Economics and Law ( email )

Wuhan, Hubei 430073
China

Department of Finance, Huazhong University of Science and Technology ( email )

Wuhan, Hubei 430074
China

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Shasha Liu

School of Management, Jinan University ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

Weiqiang Tan

Hong Kong Baptist University ( email )

Dept of FDS, HK Baptist U
Kowloon, AK 99999
Hong Kong

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