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Performance Evaluation of Sources of Investment Research

Performance Evaluation of Sources of Investment Research The Financial Review Although the work of Logue and Tuttle successfully demonstrated that, on average, brokers’ recommendations were inferior to random selections, their technique of assigning all recommendations of a brokerage firm to a single portfolio can be misleading. A performance analysis of the recommendations of a brokerage firm, or any other source of investment information, cannot be made in the same manner as the analysis of portfolios of pension funds, mutual funds, and other institutional investors. Institutional portfolios are intentionally designed to satisfy a specific investment objective of a single owner, or a homogeneous class of owners. Recommendations of sources of investment information, on the other hand, are intended for a heterogeneous class of investors with a wide range of investment objectives. Assigning all broker’s recommendations to a single hypothetical portfolio (as practiced by Logue and Tuttle) implicitly assumes that an investor would buy all of the recommendations available to him. Certainly, an income-oriented investor would not accept highly speculative recommendations, while an investor who is willing to accept great risks in hope of high returns would reject a portfolio of income stocks. Since it is possible for an information source to offer superior advice concerning one http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Financial Review Wiley

Performance Evaluation of Sources of Investment Research

The Financial Review , Volume 12 (2) – May 1, 1977

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References (38)

Publisher
Wiley
Copyright
Copyright © 1977 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0732-8516
eISSN
1540-6288
DOI
10.1111/j.1540-6288.1977.tb00959.x
Publisher site
See Article on Publisher Site

Abstract

The Financial Review Although the work of Logue and Tuttle successfully demonstrated that, on average, brokers’ recommendations were inferior to random selections, their technique of assigning all recommendations of a brokerage firm to a single portfolio can be misleading. A performance analysis of the recommendations of a brokerage firm, or any other source of investment information, cannot be made in the same manner as the analysis of portfolios of pension funds, mutual funds, and other institutional investors. Institutional portfolios are intentionally designed to satisfy a specific investment objective of a single owner, or a homogeneous class of owners. Recommendations of sources of investment information, on the other hand, are intended for a heterogeneous class of investors with a wide range of investment objectives. Assigning all broker’s recommendations to a single hypothetical portfolio (as practiced by Logue and Tuttle) implicitly assumes that an investor would buy all of the recommendations available to him. Certainly, an income-oriented investor would not accept highly speculative recommendations, while an investor who is willing to accept great risks in hope of high returns would reject a portfolio of income stocks. Since it is possible for an information source to offer superior advice concerning one

Journal

The Financial ReviewWiley

Published: May 1, 1977

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