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The performance of UK stock recommendation revisions: Does brokerage house reputation matter?
Author(s) -
Su Chen,
Zhang Hanxiong,
Joseph Nathan Lael
Publication year - 2022
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.2312
Subject(s) - reputation , popularity , luck , stock (firearms) , economics , stock market , financial economics , business , monetary economics , actuarial science , psychology , political science , engineering , social psychology , geography , mechanical engineering , philosophy , context (archaeology) , theology , archaeology , law
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).