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Performance Evaluation with Transactions Data: The Stock Selection of Investment Newsletters

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  • Andrew Metrick

Abstract

This paper analyzes the equity‐portfolio recommendations made by investment newsletters. Overall, there is no significant evidence of superior stock‐picking ability for this sample of 153 newsletters. Moreover, there is no evidence of abnormal short‐run performance persistence (“hot hands”). The comprehensive and bias‐free transactions database also allows for insights into the precision of performance evaluation. Using a measure of precision defined in the paper, a transactions‐based approach yields a median improvement of 10 percent over a corresponding factor model. This compares favorably with the precision gained by adding factors to the CAPM.

Suggested Citation

  • Andrew Metrick, 1999. "Performance Evaluation with Transactions Data: The Stock Selection of Investment Newsletters," Journal of Finance, American Finance Association, vol. 54(5), pages 1743-1775, October.
    • Handle: RePEc:bla:jfinan:v:54:y:1999:i:5:p:1743-1775
    DOI: 10.1111/0022-1082.00165
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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