The Investment Value of Australian Security Analyst Recommendations: An Application of the Black-Litterman Asset Allocation Model
The study empirically examines the investment value of analyst recommendations on constituent stocks of the S&P/ASX 50 index. For the period from 30 June 1997 to 30October 2007, we find that stocks with favourable consensus recommendations(“strong buy” and “buy”) on average earn a higher return than the market, whereasstocks with unfavourable recommendations (“strong sell” and “sell”) earn a lowerreturn. An investment strategy using the Black-Litterman asset allocation model thatoverweights (underweights) stocks with favourable (unfavourable) consensusrecommendations, in conjunction with daily rebalancing, outperforms the market interms of raw return and risk adjusted performance measures. The investment strategyinvolves high levels of trading and, as a result, no significant abnormal returns areachieved after accounting for transaction costs. Less frequent rebalancing, under mostsituations, causes a decrease in both performance and turnover. Filtering of datedrecommendations causes an increase in turnover, whilst having mixed effects oninvestment returns.
Year of publication: |
2009-02-26
|
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Authors: | He, Peng William |
Subject: | The Investment Value of Australian Security Analyst Recommendations: An Application of the Black-Litterman Asset Allocation Model |
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