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Behavior and Performance of Investment Newsletters Analysts

Author

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  • Vicente Pascual Pons-Sanz

    (General)

  • Alok Kumar

    (Mendoza College of Business)

Abstract

This study analyzes the behavior and performance of 353 investment newsletters that make asset allocation recommendations during a period covering more than 21 years (June 1980 - November 2001). Newsletters change their asset mix between equity and cash using relatively simple rules that are strongly influenced by past market returns while macro-economic variables have only a very weak influence on their asset allocation decisions. On aggregate, newsletters do not outperform a passive investment strategy but there exist well-defined newsletter sub-groups (active newsletters, contrarian newsletters) that exhibit market-timing ability. Furthermore, when we examine the recommendations of individual newsletters at a higher frequency (daily as opposed to monthly), we find considerable evidence of timing-ability. There is also evidence of persistence in newsletters' performance and a trading strategy that follows the average recommendations of newsletters that have performed well in the past 10 months is capable of outperforming the market on a risk-adjusted basis (the annual over-performance is 2.56%).

Suggested Citation

  • Vicente Pascual Pons-Sanz & Alok Kumar, 2002. "Behavior and Performance of Investment Newsletters Analysts," Yale School of Management Working Papers ysm275, Yale School of Management.
    • Handle: RePEc:ysm:somwrk:ysm275
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    File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=302888
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    Citations

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    Cited by:

    1. Scott Brown & Jose J. Cao-Alvira & Eric Powers, 2013. "Do Investment Newsletters Move Markets?," Financial Management, Financial Management Association International, vol. 42(2), pages 315-338, June.
    2. Ramin Baghai‐Wadji & Rami El‐Berry & Stefan Klocker & Markus Schwaiger, 2006. "Changing investment styles: style creep and style gaming in the hedge fund industry," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 14(4), pages 157-177, October.
    3. Marina Balboa & J. Carlos Gómez‐Sala & Germán López‐Espinosa, 2009. "The Value of Adjusting the Bias in Recommendations: International Evidence," European Financial Management, European Financial Management Association, vol. 15(1), pages 208-230, January.

    More about this item

    Keywords

    Market-timing; Performance Persistence; Active Investing; Investment Newsletters; Positive-feedback Trading;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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