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Buy/Hold/Sell recs vs actual stock perfomance
 

Amphibia's picture
O
(Monkey, 44
 
Points)
 on 1/23/11 at 7:14am

Can anybody think of a good study looking at recommendations from Equity Research - buy/hold/sell - and whether they have predictive power over the subsequent performance of the stock relative to the market. It would be interesting to see whether any house -GS, Morgan, Citi -has statistically significant past performance record, or whether it all can be explained though randomness.

Tags:
tan86's picture

Check this out. From the

O
 
Points)
 on 1/23/11 at 8:40am

Check this out. From the WSJ, a couple weeks ago:

http://online.wsj.com/article/SB100014240527487038...

Amphibia's picture

Interesting article. If

O
(Monkey, 44
 
Points)
 on 1/23/11 at 9:35am

Interesting article. If anybody know more - please post them here, I am sure this subject has been discussed heavily, around market efficiency theory and such. There was one popular study claiming monkey throwing darts at stocks would do no worse than most funds, but I cannot find the link at the moment. What would be interesting to see whether any particular house is better or worse historically, e.g. GS vs small firms, etc.

I personally like to think of all equity research business model as"assurance" - they just wrap the prevalent sentiment into nice phrases and numbers to carry around, so as to make sense of the things... But as to answering where the things are going to be tomorrow - that's another story.

APAE's picture

Great article to read,

(Neanderthal, 3,660
 
Points)
 on 1/23/11 at 10:22am

Great article to read, thanks.

A lot of people do certain things to add days to their life. I do things to add life to my days.

manbearpig's picture

Can someone please explain to

CO
(Neanderthal, 3,029
 
Points)
 on 1/23/11 at 10:39am

Can someone please explain to me the point of the "hold" recommendation? Why would you want to hold something that's not goingto go up, and if it's predicted to go up, why wouldn't you want to buy it ?

-MBP

Amphibia's picture

You hold on to something when

O
(Monkey, 44
 
Points)
 on 1/23/11 at 11:23am

You hold on to something when you are not sure - there is potential for the stock to go up, but the downward potential is also there, so if you don't own the stock - the risk is probably too high, and there are likely better opportunities, however if you are already in, then might as well sit it through to see how it turns out. Technically, you could reason based on transaction costs - if you already there, you have paid your brokerage fees to buy, and would need to pay to sell. But then in real terms, its just a scale, if you think of recommendations in range from -2 to +2, hold would be 0. The only problem with 0'es, is that nobody likes them, markets prefer action, action=sales=commissions, so you wouldn't see too many holds I presume.

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