An analysis of stockbroking firms' recommendations
The market effi ciency theo ry assumes that all securities are correctly priced. However, most stockbroking firms do provid e stock recommendations which aim to ' beat the market'. Hence, if the market is efficient, one wonders what the economic value of security analy...
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Main Authors: | , , |
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Format: | Final Year Project |
Language: | English |
Published: |
2014
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Subjects: | |
Online Access: | http://hdl.handle.net/10356/58579 |
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Institution: | Nanyang Technological University |
Language: | English |
Summary: | The market effi ciency theo ry assumes that all securities are correctly priced. However,
most stockbroking firms do provid e stock recommendations which aim to ' beat the
market'. Hence, if the market is efficient, one wonders what the economic value of
security analysis is.
The performance of security analysts ' recommendations has been extensively studied in
Australia, Canada, United Kingdom and the United States. Most of these research
studies examine the value of stock recommendations using form of residual analysis,
such as market adjusted returns and risk adjusted abnormal returns.
This Applied Research Project evaluates the performance of Singapore security
analysts ' recommendations. Two hundred and eighty-six buy recommendations by four
stockbroking firms from January 1990 to December 1992 were selected and analysed.
Market adjusted returns and risk adjusted abnormal returns were used as performance
measures for the recommendations.
From our study, we found that not all stockbroking firms could add value in their
recommendations. Among the four stockbroking firms, only one firm managed to
outperform the market consistently for all the investment horizons. Furthermore, by
comparing between the three strategies based solely on returns, it was observed that
generally, the short-term strategy was the best. However, there was no strategy that
was superior to others in terms of both risk and returns.It can be inferred from this study that ranking might exist among stockbroking firms in
the industry. The ranking will, in turn, motivate the stockbroking firms to excel in their
performance. This will definitely benefit the investing community in the long-term, as
they will be able to obtain more valuable recommendations from the stockbroking
firms. |
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