Publications
Publications
- 2025
- HBS Working Paper Series
Government-Brokerage Analysts and Market Stabilization: Evidence from China
By: Sheng Cao, Xianjie He, Charles C.Y. Wang and Huifang Yin
Abstract
We show analysts at government-controlled brokerage firms serve as a market stabilization tool
in China. Using earnings forecasts from 2005–2019, we find government-brokerage analysts
issue relatively more optimistic—yet less accurate and timely—forecasts during market rescue
periods, supporting stock prices. During market booms, they issue comparatively pessimistic
but more accurate and timely forecasts, tempering excessive optimism. We show that these
patterns are consistent with market stabilization incentives, and their impact is substantial:
stocks with greater government-brokerage coverage experience higher liquidity during downturns
but lower liquidity during hot markets, with corresponding post-earnings price adjustments. Our
findings validate Brunnermeier, Sockin, and Xiong (RES 2022)’s theoretical predictions: state
interventions can erode information efficiency under intensive intervention while maintaining it
under a moderate level of intervention. Collectively, these results underscore that analysts can
serve a dual role—as information providers and policy instruments shaping market expectations
and stability—in a coordinated economy.
Keywords
Sell-side Analysts; Forecast Optimism; Forecast Accuracy; Government Incentives; Market Stabilization; Government Ownership; Coordinated Economies; Stocks; Forecasting and Prediction; Business and Government Relations; Emerging Markets
Citation
Cao, Sheng, Xianjie He, Charles C.Y. Wang, and Huifang Yin. "Government-Brokerage Analysts and Market Stabilization: Evidence from China." Harvard Business School Working Paper, No. 18-095, March 2018. (Revised March 2025.)