Wall Street brokerages are better at picking stocks than money managers, according to a seven-year study that ran from 1997 through 2004.
Stocks picked by sell-side brokerages performed three times better than those picked by buy-side mutual funds, according to the study prepared by Harvard Business School and the University of North Carolina.
Competition among brokerages, as well as the need to publish results at brokerages, may be behind the difference.
“It's the scrutiny,” said Partha Mohanram, a finance professor at Columbia University in New York who wasn’t involved in the study, according to Bloomberg.
“There is a reputation cost for being wrong. Buy-side research is not that kind of competition. It’s different kinds of clients.”
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, according to Bloomberg.
“Our evidence on the stock performance of buy-side recommendations is less surprising than the remarkably strong performance of the sell-side.”
© 2013 Newsmax. All rights reserved.