THE PERFORMANCE OF
Date
2011-05-13
Authors
McLaren, Grant McLaren
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Abstract
Previous research has reached no consensus on the performance of brokerage
firms’ stock recommendations.
This study evaluates whether brokerage firms’ stock recommendations have
investment value, and whether individual investors can profit from these stock
recommendations.
An event study was used to determine if stock recommendations produced
significant abnormal returns. The abnormal returns were calculated by stripping
out three market effects from the returns of shares listed on the JSE, namely
the size effect, the value effect and the resources effect. The removal of these
market effects ensured that abnormal returns could be better attributed to
published consensus recommendations.
The research shows that consensus recommendations do not provide
investment value. The research did find positive abnormal returns for stocks
which are the subject of upgrade recommendations. However, individual
investors could not actually profit from upgrade consensus recommendations as
the magnitude of the abnormal returns would not be sufficient to offset
transaction costs and broker commissions
Description
MBA - WBS
Keywords
Stock brokers, Brokerage firms