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Analyst Activity, Forecast Accuracy, and Investor Demand for Information
Ran Ron Barniv,
Kent State University
ABSTRACT. Specific trading rights and financial reporting systems in China provide a unique and exclusive opportunity to test demand and supply factors of analyst information. For shares traded only by less-informed foreign investors, the increased demand may create incentives for analysts to exert greater efforts than for shares traded by local investors. My study provides evidence that analyst coverage and consensus cross-analyst forecast variability affect forecast accuracy more significantly for shares traded by foreign investors than for shares traded by local investors. The relation between analyst characteristics and the relative forecast accuracy is also stronger for shares traded by the foreign investors. Finally, I find that higher foreign-investor ownership, used as a proxy for investor demand, increases forecast accuracy. The findings are consistent with analysts responding to demands by less-informed investors.
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