The role of analysts: An examination of the idiosyncratic volatility anomaly in the Chinese stock market

Ming Gu, George J. Jiang and Bu Xu

Journal of Empirical Finance, 2019, vol. 52, issue C, 237-254

Abstract: Given the unique institutional setting in the Chinese stock market, we investigate the effect of analyst activity on the idiosyncratic volatility (IVOL) anomaly. Our results show that the inverse relation between IVOL and future stock returns is more pronounced in stocks without analyst coverage. Furthermore, for stocks with analyst coverage, revision activity attenuates the IVOL anomaly. In fact, we find a positive relation between IVOL and future stock returns among stocks receiving analyst upgrades. We interpret our findings as evidence that analysts play an important role in disseminating information and reducing information asymmetry. As a result, news about firm fundamentals, particularly positive news, is incorporated more quickly into stock prices when analysts issue upgrade revisions. Finally, we show that our results are not subsumed by other potential explanations of the IVOL anomaly.

Keywords: Analyst coverage; Analyst revision; Idiosyncratic volatility anomaly; Chinese stock market (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:52:y:2019:i:c:p:237-254

DOI: 10.1016/j.jempfin.2019.03.007

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