Fifty-Fifty. Stock Recommendations and Stock Prices. Effects and Benefits of Investment Advice in the Business Media
AbstractThe business media play an active role in influencing stock prices. Statistically significant excess returns at the time of the publication of stock recommendations have been documented many times. Frequently these abnormal gains begin to accumulate long before the publication date. In most cases they reach their highs on the day the recommendations are disseminated to the public. With few exceptions a price reversal sets in shortly thereafter: Excess returns in recommended stocks are at least partially given up. Many stocks now enter a period of underperformance, earning significant negative returns. The return reversions indicate that such stock price reactions are due to price pressure from "naive" investors hoping to profit from the experts. However, most media lack any real information that is not yet reflected in stock prices. In short: There is no evidence that stock recommendations published in the media offer any systematic opportunity to outperform the market. The evidence leads to the opposite conclusion: That investors who follow such advice will lose in the long run.
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Date of creation: 13 Mar 2003
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stock recommendations; financial media; stock prices; market efficiency;
Find related papers by 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
- G19 - Financial Economics - - General Financial Markets - - - Other
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-02 (All new papers)
- NEP-CFN-2003-04-02 (Corporate Finance)
- NEP-FIN-2003-04-02 (Finance)
- NEP-FMK-2003-04-02 (Financial Markets)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Stephen J. Brown & William N. Goetzmann & Alok Kumar, 2004.
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Yale School of Management Working Papers
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- Stephen Brown & William Goetzmann & Alok Kumar, 1998. "The Dow Theory: William Peter Hamilton's Track Record Re-Considered," Yale School of Management Working Papers ysm85, Yale School of Management, revised 01 Apr 2008.
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