Exploring stock recommenders' behavior and recommendation receivers' sophistication

摘要

This study applies an event study to examine the stock price reactions and trading activities of informational stakeholders associated with changes in stock recommendations made by foreign institutional investors (FIIs) in Taiwan. The empirical results indicate that, when FIIs (i.e., stock recommenders) face a conflict between their reputations and self-interest, they choose to make optimal profits at the expense of their reputations. A significant disposition effect exists in the trading behavior of experienced retail investors (i.e., one of the recommendation information receivers) concerning stock recommendation changes. Furthermore, the findings confirm that FIIs regularly attempt to exploit the disposition effect of experienced retail investors to enhance their own profitability.