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Fifty-Fifty. Stock Recommendations and Stock Prices. Effects and Benefits of Investment Advice in the Business Media

Author

Listed:
  • Thomas Schuster

    (Leipzig University)

Abstract

The 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.

Suggested Citation

  • Thomas Schuster, 2003. "Fifty-Fifty. Stock Recommendations and Stock Prices. Effects and Benefits of Investment Advice in the Business Media," Finance 0303002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0303002
    Note: Type of Document - ; prepared on PC
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0303/0303002.pdf
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    References listed on IDEAS

    as
    1. Beltz, Jess & Jennings, Robert, 1997. ""Wall street week with Louis Rukheyser" recommendations:Trading activity and performance," Review of Financial Economics, Elsevier, vol. 6(1), pages 15-27.
    2. repec:bla:jfinan:v:59:y:2004:i:3:p:1259-1294 is not listed on IDEAS
    3. Albert, Robert Jr. & Smaby, Timothy R., 1996. "Market response to analyst recommendations in the "dartboard" column: the information and price-pressure effects," Review of Financial Economics, Elsevier, vol. 5(1), pages 59-74.
    4. Brad Barber & Reuven Lehavy & Maureen McNichols & Brett Trueman, 2001. "Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns," Journal of Finance, American Finance Association, vol. 56(2), pages 531-563, April.
    5. repec:bla:jfinan:v:53:y:1998:i:4:p:1311-1333 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    stock recommendations; financial media; stock prices; market efficiency;
    All these keywords.

    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; Personnel Economics - - Accounting - - - Accounting

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