wie wertvoll sind analysten? neue erkenntnisse aus dem ...¤sentation_dr... · recommendation...
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Wie wertvoll sind Analysten?
Neue Erkenntnisse aus dem Bereich empirischer
Kapitalmarktforschung
DVFA Kongress
PD Dr. Alexander Kerl, CFA
1
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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
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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
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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
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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
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NYSE Rule 472(k)(1)
PD Dr. Alexander Kerl, CFA DVFA Kongress 6
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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