The Performance of Investment Newsletters - FEDERAL RESERVE BANK of NEW YORK

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Staff Reports

The Performance of Investment Newsletters

October 1998 Number 48

JEL classification: G11, G14

Authors: Jeffrey F. Jaffe and James M. Mahoney

This paper analyzes the recommendations of common stocks made by the investment newsletters followed by the Hulbert Financial Digest. We conclude that, taken as a whole, the securities that newsletters recommend do not outperform appropriate benchmarks. Our data provide modest evidence that the future performance of a newsletter is related to its past performance, when performance is measured by raw returns. However, evidence of persistence vanishes when performance is measured by abnormal returns. We find little, if any, evidence of herding, i.e., cross-sectional dependence of recommendations, across newsletters. Newsletters tend to recommend securities that have performed well in the recent past. Finally, newsletters with poor past performance are more likely to go out of business.

Available only in PDF PDF

26 pages / 2,210 kb

For a published version of the report, see Jeffrey F. Jaffe and James M. Mahoney, "The Performance of Investment Newsletters," Journal of Financial Economics 53, no.2 (August 1999): 289-307.

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