A Note on the Value Line Stock Highlight Effect

Each week Value Line highlights one or two timeliness rank 1 stocks. We find a significant 2.65 percent three-day return around this event. However, this effect is temporary and largely reverses over the next several weeks. We also find that the market response to a highlighted stock is stronger when the stock has a lower price/earnings ratio, is smaller, and has fewer institutional owners. We cannot find evidence against the semistrong form of the efficient market hypothesis. Finally, we present a hypothesis examining whether a favorable Value Line report permanently or temporarily affects stock price.