Do analysts disseminate anomaly information in China?

Abstract

This study examines whether sell-side analysts can disseminate information consistent with anomaly prescriptions in China. I adopt 192 trading- and accounting-based anomaly signals to identify undervalued and overvalued stocks. Results show that analysts tend to make more (less) favorable recommendations and earnings forecasts for undervalued (overvalued) stocks. Regarding the information content, analyst recommendations and earnings forecasts are consistent with accounting- rather than trading-based information. Additionally, analyst recommendations and earnings forecasts are consistent with anomalies, especially for firms with a relatively poor information environment. These results indicate that Chinese analysts can mitigate anomaly mispricing and improve market efficiency.