Abstract
Using the brokerage analyst reports released from 2014 to 2019, this paper examines the effects of the information role of brokerage firms and the information transmission role of the media on investor trading activity in the Taiwan stock market. Trading activity in the market can be categorized by investor types, including retail investors and institutional investors (foreign institutions, mutual funds, and broker dealers). This paper reviews the “buy the rumor, sell the news” trading strategy, which refers to institutional investors acting as early-informed traders and exhibiting short-term profit-taking characteristics. Notably, mutual funds have the best informational advantage among institutional investors, whose trading activities are significantly and positively related to the abnormal returns around the release of brokerage reports. On the other hand, retail investors may follow the trading activity of institutional investors without making a significant profit. The empirical findings are robust to include several firm and market characteristics. Overall, the empirical results provide in-depth insights into the regulation of brokerage analyst report disclosures.
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