Abstract
This paper analyses the relationship between stock recommendations on the internet and the stock price movements by using a dataset downloaded from a leading financial research company website (Stockstar.com) in China. The study employs event study analysis methodology. According to my research results: (1) Before the recommendations, abnormal returns of the recommended stocks increased. Their market opening returns were positive on the following day. However, from the next day, the abnormal returns began to turn negative. (2) Before the recommendations, the volatility of the abnormal returns is greater than that after the recommendations, and the volatility of abnormal intra-day returns is greater than that of the abnormal opening returns.(3) The trading volume increased continuously until the day after the recommendations’ day but it began to decrease thereafter. These results suggest that semi-strong form efficiency was not achieved in the case of Chinese market and the contrarian strategy produces a better performance than that of either momentum strategy or of the index trading.
