Study on analyst optimism and individual stock price crash

Abstract

This paper studies the relation between analyst optimism and individual stock price crash, and whether the conflict of interest affects the relation. Examining a comprehensive sample of listed companies between 2007 and 2012 in Shanghai and Shenzhen A-share stock market in China, we provide strong evidence that analyst optimism is positively associated with stock price crash. Furthermore, we test the conflict of interest, results show that: when the company is going to refinance, or if the ratio of analysts from top 10 brokerage firms is high, the impact of analyst optimism on individual stock price crash is more pronounced. On the contrary, analyst reputation reduces the impact of analyst optimism on crash. This research provides a reasonable explanation of stock price crashes, and contributes to a comprehensive and objective understanding of analysts in the capital market in China.