Are Brokers' Buy, Hold and Sell Recommendations of Value to Individual Investors?

Investors who invest on the Johannesburg Securities Exchange (JSE) base their investment decisions on information obtained from the financial press, radio and television or from a broker or investment consultant. The purpose of the study is to test the hypothesis that an individual using information obtained from sharebroking companies can earn a return in excess of the market return on the JSE. To test this hypothesis, a buy, a hold and a sell portfolio were created using the average recommendations received from the brokers. The results of this study indicate that investors can earn a return greater than that of the market return based on brokers' recommendations to buy and to hold, if no risk-adjustments are made to the returns. If the returns are adjusted for risk, the brokers' recommendations were able to render a return superior or equal to the market and they are able to limit investors' losses in relation to the movement in the market