Tags: brokers | vs | managers

Study Shows Your Broker Knows Better

Friday, 07 Aug 2009 02:08 PM

By Forrest Jones

Brokerages were better at picking stocks than money managers, according to study running from 1997 through 2004.

Much better, in fact.

On the money manager side, chosen stocks stamped with a “buy” and “strong buy” recommendations produced an annual market-adjusted return of 2.3 percent, compared with an 8.1 percent average for the brokerages, the study found.

“The findings raise questions about why investment firms continue to fund buy-side research and do not simply rely on the sell-side,” said the authors of the report.

“Our evidence on the stock performance of buy-side recommendations is less surprising than the remarkably strong performance of the sell-side.”

Competition among brokerages as well as the need to publish results may be behind the difference.

“It's the scrutiny,” Partha Mohanram, a finance professor at Columbia University in New York who wasn’t involved in the study, told Bloomberg.

“There is a reputation cost for being wrong. Buy-side research is not that kind of competition. It’s different kinds of clients.”

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