Stock market openness and analyst forecast bias
Document Type
Article
Date of Original Version
10-1-2021
Abstract
Biases in analysts’ forecasts can be reduced not only through regulation but also through market mechanisms. In 2014, China launched the Shanghai-Hong Kong Connect program, which opened part of its domestic equity market to foreign investors. The implementation of this program provides a quasi-natural experimental setting to explore whether stock market openness plays a governance role in brokerage firms and minimizes their affiliated analysts' forecast biases. We find that the participation of foreign institutional investors mitigates the forecast biases of affiliated analysts. We also show that these analysts exert more significant effort by conducting more site visits. Our findings suggest that market liberalization can help improving the quality of analysts’ forecasts.
Publication Title, e.g., Journal
Journal of Accounting and Public Policy
Volume
40
Issue
6
Citation/Publisher Attribution
Chen, Shenglan, Bingxuan Lin, Rui Lu, and Hui Ma. "Stock market openness and analyst forecast bias." Journal of Accounting and Public Policy 40, 6 (2021). doi: 10.1016/j.jaccpubpol.2021.106874.