Wie wertvoll sind Analysten? Neue Erkenntnisse aus dem ...¤sentation_Dr... · Recommendation...
Transcript of Wie wertvoll sind Analysten? Neue Erkenntnisse aus dem ...¤sentation_Dr... · Recommendation...
Wie wertvoll sind Analysten?
Neue Erkenntnisse aus dem Bereich empirischer
Kapitalmarktforschung
DVFA Kongress
PD Dr. Alexander Kerl, CFA
1
Outline of presentation
Part I
Analysts and conflicts of interests: general introduction and empirical findings
Part II
Analysts and the corporate governance environment: empirical findings
Part III
Analysts and European mutual fund trading: empirical findings
2PD Dr. Alexander Kerl, CFA DVFA Kongress
Part I
Part I
Analysts and conflicts of interests: general introduction and empirical findings
Part II
Analysts and the corporate governance environment: empirical findings
Part III
Analysts and European mutual fund trading: empirical findings
3PD Dr. Alexander Kerl, CFA DVFA Kongress
Distribution of stock recommendations
Source: Barber et al. (2006) Journal of Accounting and Economics 41, 87-117.
PD Dr. Alexander Kerl, CFA DVFA Kongress 4
NYSE rule 472
&
NASD rule 2711
Global Research Settlement and further regulation
DVFA Kongress 5PD Dr. Alexander Kerl, CFA
» 1990s: mainly positive
recommendations and
increasing earnings forecasts
» Continuous increase in
forecasts continued despite
the burst of the dot.com
bubble
» News Yorks‘ state attorney
turned against positive
forecasts
» 2002: $1.4 bn compromise
settlement with 10 leading
investment banks
Eliot Spitzer vs. investment banks
» Introduction of chinese
walls
» Adjustment of analyst
compensation + attendence
of road shows in only very
restrictive occasions
» Purchase of additional
independent research
» Further transparency by
disclosure requirements of
recommendations and
conflicts of interests
Settlement agreements
NYSE Rule 472(k)(1)
PD Dr. Alexander Kerl, CFA DVFA Kongress 6
List of potential conflicts of interests
PD Dr. Alexander Kerl, CFA DVFA Kongress 7
Ownership
Market
makerDirector
Non IB-
Services IB-Services• Client relationship
• Compensation
• IPO / offering
Research project 1: Sell-side analyst research and
reported conflicts of interest
No. of companies
by CoI_Score
No. of occurences
per category
» Classification of individual
conflicts into 4 (+1) categories
that are mutually exclusive
IB_Client non_IB_Client
MktMakerHold_1pct
Other
Individual conflict categories
CoI_Score є {0, 1, 2, 3, 4, 5}
PD Dr. Alexander Kerl, CFA DVFA Kongress 8
Descriptive statistics: recommendation
Recommendation seems to also increase in
number of conflicts…
PD Dr. Alexander Kerl, CFA DVFA Kongress 9
1
1,2
1,4
1,6
1,8
2
2,2
2,4
2,6
2,8
3
0 1 2 3 4 5
∅2.4
Recommendation
statistic by CoI_Score
% Sell
% Buy0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
% Sell % Hold % Buy
Rating distribution across
recommendation and conflict type
… and is more optimistic for every
individual type of conflict vs. no conflict at all
Part II
Part I
Analysts and conflicts of interests: general introduction and empirical findings
Part II
Analysts and the corporate governance environment: empirical findings
Part III
Analysts and European mutual fund trading: empirical findings
10PD Dr. Alexander Kerl, CFA DVFA Kongress
Research project 2: Analysts‘ forecasts and the quality
of financial disclosures
DVFA Kongress 11PD Dr. Alexander Kerl, CFA
» Analysts‘ forecasts are
informative when
other information is
scarce
versus
» Forecasts are most
informative in case of
high-quality financial
information
HypothesesMeasurement of
information value
» Information value of
research measured by
market reaction
» Information value of
research measured by
forecast error of
earnings and target
prices
Regulation measures
» Common vs. civil law
country
» Anti-self dealing index
» Public enforcement
index
» Staff enforcement
index
� A higher measures
reveals a higher level of
investor protection
Information value of analyst research (i.e. market
reaction)
Positive signals
Upgrade
EPS_forecast (increase)
TP (increase)
Negative signals
Downgrade
EPS_forecast (decrease)
TP (decrease)
DVFA Kongress 12PD Dr. Alexander Kerl, CFA
Low regulation countries High regulation countries
Stock price reaction around report publication (CAR[-2,+2])
N° of observations / R2 628,361 / 11.9%
Stronger stock price reaction in ‘high regulation countries’ (� higher information value)
Dependent variable
Information value of analyst research (i.e. forecast
error)
Regulation measure
Common law country
Anti-self dealing index
Public enforcement index
Staff enforcement index
N° of observations / R2 410,886 / 15.7%
DVFA Kongress 13PD Dr. Alexander Kerl, CFA
EPS error Target price error
Forecast error
Lower forecast error in ‘high regulation countries’ (� higher information value)
Dependent variable
Part III
Part I
Analysts and conflicts of interests: general introduction and empirical findings
Part II
Analysts and the corporate governance environment: empirical findings
Part III
Analysts and European mutual fund trading: empirical findings
14PD Dr. Alexander Kerl, CFA DVFA Kongress
Research project 3: Analyst forecasts and European
mutual fund trading
DVFA Kongress 15PD Dr. Alexander Kerl, CFA
» Most mutual fund companies are
too small to offer comprehensive
buy-side analysis
» Specialization effects of external
analysts
» Reference to prudent investment
guidelines
Reasons for using sell-side information
» LionShare from FactSet
» Semi-annual portfolio holdings of
4,300 European mutual funds
» Time period: 2005 to 2009
» Almost 1.2 mio active trades
» Analyst information from 5,000
stocks (from US, Japan, UK,
Germany, France, Italy, Spain,
Switzerland)
Database
Mutual fund manager follow research
Forecast measure
Cons. recommendation revision
Cons. EPS revision
Cons. target price revision
N° of observations / R2 1,155,713 / 2.5%
DVFA Kongress 16PD Dr. Alexander Kerl, CFA
Mutul fund
% holding change
All analyst forecast measures positively influence the trading behavior of mutual funds
Further analyses show that following sell-side research is beneficial
Dependent variableEspecially strong results:
» For positive forecast
changes
» With increasing
number of inputs
» If analysts opinion
deviates less
Conclusion
DVFA Kongress 17PD Dr. Alexander Kerl, CFA
» Regulation efforts due
to optimistic forecasts
» Forecasts still seem to
be biased
» Forecast optimism
increases in number of
prevailing conflicts
Forecasts & conflicts of
interest
Forecasts & corporate
governance
» Information value of
forecasts seems higher
in countries with
stronger investor
protection & higher
regulation
» This could be due to
higher quality of firm
disclosure which is
beneficial for analysts’
forecast quality
Impact on mutual fund
trading
» Mutual fund
managers make use of
external sell-side
information
» This behavior seems
beneficial since trades
in line with prior
forecasts outperform
trades that are
contrary to forecasts