The performance of UK stock recommendation revisions: Does brokerage house reputation matter?

Chen Su; Hanxiong Zhang; Nathan Joseph

doi:10.1002/ijfe.2312

The performance of UK stock recommendation revisions: Does brokerage house reputation matter?

Chen Su, Hanxiong Zhang, Nathan Joseph

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Abstract

Our study examines the impact of brokerage house (BH) reputation on the performance of investment strategies following stock recommendation revisions in the UK stock market. We develop two alternative proxies for BH reputation based either on the past positions on the annual Institutional Investor (II) All-
Europe Research Team or on the past recommendation performance of BHs. We find that BH reputation proxied by the past II rankings has no significant impact on the recommendation performance, suggesting that the II rankings are largely “popularity contests”. However, BH reputation proxied by the past
year recommendation performance of BHs has a significantly positive impact on the recommendation performance in the next year, implying that the recommendation performance of BHs in the UK market is persistent. The bootstrap simulations further confirm that the observed performance persistence could be due to BH skill rather than BH luck (i.e., random chance).

Original language	English
Pages (from-to)	3051-3070
Number of pages	20
Journal	Journal of International Finance & Economics
Volume	27
Issue number	3
Early online date	19 Oct 2020
DOIs	https://doi.org/10.1002/ijfe.2312
Publication status	E-pub ahead of print - 19 Oct 2020

Bibliographical note

© 2020 The Authors. International Journal of Finance & Economics published by John Wiley & Sons Ltd.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

Funder

Financial support from the Faculty of Humanities and Social Sciences (HaSS), Newcastle University under the Faculty Research Fund – Autumn 2019 (OSR/0372/FR19/0001).

Keywords

Bootstrap simulations
brokerage house reputation
financial analysts
performance persistence
stock recommendation revisions

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

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10.1002/ijfe.2312Licence: CC BY

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Cite this

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title = "The performance of UK stock recommendation revisions: Does brokerage house reputation matter?",

abstract = "Our study examines the impact of brokerage house (BH) reputation on the performance of investment strategies following stock recommendation revisions in the UK stock market. We develop two alternative proxies for BH reputation based either on the past positions on the annual Institutional Investor (II) All-Europe Research Team or on the past recommendation performance of BHs. We find that BH reputation proxied by the past II rankings has no significant impact on the recommendation performance, suggesting that the II rankings are largely “popularity contests”. However, BH reputation proxied by the pastyear recommendation performance of BHs has a significantly positive impact on the recommendation performance in the next year, implying that the recommendation performance of BHs in the UK market is persistent. The bootstrap simulations further confirm that the observed performance persistence could be due to BH skill rather than BH luck (i.e., random chance).",

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The performance of UK stock recommendation revisions: Does brokerage house reputation matter?

Abstract

Bibliographical note

Funder

Keywords

ASJC Scopus subject areas

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