The 'CAPS' Prediction System and Stock Market Returns

39 Pages Posted: 17 May 2009  

Christopher Avery

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Judith A. Chevalier

Yale School of Management; National Bureau of Economic Research (NBER)

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Date Written: April 12, 2009

Abstract

We analyze the informational content of more than 1.2 million stock picks provided by more than 60,000 individuals from November 1, 2006 to October 31, 2007 on the CAPS open access website created by the Motley Fool company (www.caps.fool.com). On average, an individual pick in CAPS outperformed the S&P 500 index by 4 percentage points in the twelve months after the pick. We use a four-factor regression framework to estimate the excess returns associated with portfolios that aggregate these picks; a portfolio of the most popular CAPS stocks yielded excess returns of more than 18 percentage points annually relative to the portfolio of the least popular stocks.

Keywords: Economics, Microeconomics, Information Technology

Suggested Citation

Avery, Christopher and Chevalier, Judith A. and Zeckhauser, Richard J., The 'CAPS' Prediction System and Stock Market Returns (April 12, 2009). HKS Working Paper No. RWP09-011. Available at SSRN: https://ssrn.com/abstract=1404750 or http://dx.doi.org/10.2139/ssrn.1404750

Christopher Avery (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-496-4063 (Phone)
617-496-1722 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Judith A. Chevalier

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Richard J. Zeckhauser

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-496-3783 (Fax)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-384-9340 (Fax)

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