Performance of Second Hand Public Investment Recommendations

This paper investigates the price and volume behavior around buy, sell and holdrecommendations of Swiss stocks, as published in the major financial newspaper in Switzerland. This represents a random selection of recommendations which have been previously released by banks to their customers. This sample is much less exposed to the selection bias inherent in public recommendations of banks. In a fully efficient market, no price effect should be observed – because the information was already available to a limited number of investors before. We however find that there is a significant price reaction on the week of publication. This demonstrates that information aggregation has price effects. Wemoreover investigate the long term price behavior around the announcements, as well as the trading volumes. The recommendations of foreign banks are more accurate than those of Swiss banks which indicates possible conflicts of interest. But we do not find evidence that the recommendations of banks not involved in investment banking activities are superior to those of investment banks.