Brokerage Houses and Their Stock Recommendations: Does Superior Performance Persist?

41 Pages Posted: 4 Nov 1999

See all articles by Brad M. Barber

Brad M. Barber

University of California, Davis

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business

Brett Trueman

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: September 1999

Abstract

This paper tests for the existence of performance persistence in brokerage house stock recommendations. For the period 1987-1996 we show that purchasing the current-year buy recommendations of the brokerage houses with the best prior performance earned an annualized geometric mean raw return of 18.6 percent, while purchasing the recommended stocks of the houses with the worst prior performance earned only 14.3 percent. After controlling for market risk, size, book-to-market, and price momentum effects, though, we find no significant difference, in general, between the abnormal returns of the best and worst brokerage houses. A series of supplementary tests confirm this result. The findings for brokerage house sell recommendations are even weaker. Overall, our tests provide no reliable evidence of performance persistence for brokerage house stock recommendations.

JEL Classification: G12, G14, G29

Suggested Citation

Barber, Brad M. and Lehavy, Reuven and Trueman, Brett, Brokerage Houses and Their Stock Recommendations: Does Superior Performance Persist? (September 1999). Available at SSRN: https://ssrn.com/abstract=181299 or http://dx.doi.org/10.2139/ssrn.181299

Brad M. Barber (Contact Author)

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States
734-763-1508 (Phone)
734-936-0282 (Fax)

Brett Trueman

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-4720 (Phone)
310-267-2193 (Fax)

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