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Broker Recommendations and Australian Small‐Cap Equity Fund ManagementCarole Comerton‐Fordeaffiliation not provided to SSRN David R. GallagherCentre for International Finance and Regulation; The University of New South Wales - Australian School of Business; Macquarie Graduate School of Management Joyce LaiUniversity of New South Wales; Morgan Stanley Terry S. WalterUniversity of Technology, Sydney - School of Finance and Economics; Financial Research Network (FIRN) December 2011 Accounting & Finance, Vol. 51, Issue 4, pp. 893-922, 2011 Abstract: This study examines whether the abnormal performance of active Australian small‐cap equity fund managers is associated with broker recommendations. Our evidence supports the investment value of broker recommendations, showing significant abnormal returns (ARs) both pre‐ and post‐broker recommendations. We find that when a factor‐mimicking portfolio based on broker recommendations is added to a Carhart (1997) model, annual alphas are reduced by 48 basis points. Using transaction‐level data, buy trades following broker recommendations earn significant cumulative ARs of 1.56 per cent after 60 days. Overall, we find that broker recommendations account for an economically significant component of alphas.
Number of Pages in PDF File: 30 Keywords: Active small‐cap fund management, Broker recommendations, Alpha JEL Classification: G23 Accepted Paper SeriesDate posted: November 3, 2011Suggested CitationContact Information
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