Performance Evaluation with Transactions Data: The Stock Selection of Investment Newsletters
AbstractThis paper analyzes the equity-portfolio recommendations made by investment newsletters. The dataset spans 17 years, is free of survivor and back-fill biases, and includes the complete recommendations for 153 different newsletters. Overall, there is no significant evidence of superior stock-picking ability for this sample of newsletters. Some individual letters do have superior performance records, but this does not occur more often than would be expected by chance, and these records are never more extreme than would be expected for the sample size. In addition, a strategy of buying past winners does not earn positive abnormal returns. The comprehensive and bias-free transactions database also allows for insights into several popular models of performance evaluation. The transactions-based approach of Daniel, Grinblatt, Titman and Wermers (1997) yields a median improvement in precision of 10 percent over the 4-factor model of Carhart (1997a), with the former approach providing more precise estimates of abnormal performance for more than 80 percent of the newsletters. This compares with a median improvement of less than 1 percent for the 4-factor model over the CAPM.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6648.
Date of creation: Jul 1998
Date of revision:
Publication status: published as Journal of Finance, Vol. 54, no. 5 (October 1999): 1743-1775.
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
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Other versions of this item:
- Andrew Metrick, 1999. "Performance Evaluation with Transactions Data: The Stock Selection of Investment Newsletters," Journal of Finance, American Finance Association, American Finance Association, vol. 54(5), pages 1743-1775, October.
- 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
This paper has been announced in the following NEP Reports:
- NEP-IFN-1998-08-21 (International Finance)
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