Abstract: "A model is developed which implies that if an analyst has high reputation or low ability, or if there is strong public information that is inconsistent with the analyst's private information, she is likely to herd. Herding is also common when informative private signals are positively correlated across analysts. The model is tested using data from analysts who publish investment newsletters. Consistent with the model's implications, the empirical results indicate that a newsletter analyst is likely to herd on Value Line's recommendation if her reputation is high, if her ability is low, or if signal correlation is high."
The Value Line Investment Survey is the best known investment newsletter, it is well-respected and freely available. \citet{Graham99} found that a newsletter analyst is likely to herd on Value Line's recommendation if his reputation is high, if his ability is low or if the signal correlation is high.
Abstract: "We analyze the advice contained in a sample of 237 investment newsletter strategies over 1980-1992. Each newsletter strategy recommends a mix of equity and cash. We find no evidence that letters systematically increase equity weights before market rises or decrease weights before market declines. While there is no information in the newsletter strategies about future market returns, we document that disagreement among the newsletters is correlated with future realized and implied volatility."
\citet{GrahamHarvey96} analyzed the advice contained in a sample of 237 investment newsletter strategies over 1980--1992 and found that there is little information in the investment newsletters' opinions regarding stock market direction. However they they did find that the degree of disagreement among letters predicts both realized and expected volatility as well as trading volume.
Abstract: "Many investment newsletters offer market-timing advice; that is, they are supposed to recommend increased stock market weights before market appreciations and decreased weights before market declines. Examination of the performance of 326 newsletter asset-allocation strategies for the 1983--95 period shows that as a group, newsletters do not appear to possess any special information about the future direction of the market. Nevertheless, investment newsletters that are on a hot streak (have correctly anticipated the direction of the market in previous recommendations) may provide valuable information about future returns."
\citet{GrahamHarvey97} examined the performance of 326 newsletter asset-allocation strategies for the 1983--95 period. They found that, as a group, newsletters do not appear to possess any special information about the future direction of the market. Nevertheless, they found that investment newsletters that are on a hot streak (have correctly anticipated the direction of the market in previous recommendations) may provide valuable information about future returns.
Abstract: "This paper analyzes the recommendations of common stocks made by the investment newsletters followed by the \emph{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 measure by raw returns. Evidence of persistence vanishes, however, 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."
\citet{JaffeMahoney99} analyzed the recommendations of common stocks made by the investment newsletters followed by the \emph{Hulbert Financial Digest}. Taken as a whole, the securities that newsletters recommend did not outperform appropriate benchmarks and the performance of the newsletters did not exhibit persistence. They found little, if any, evidence of herding. Newsletters tend to recommend securities that have performed well in the recent past and newsletters with poor past performance are more likely to go out of business.
Abstract: "This study analyzes the behavior and performance of 353 investment newsletters that make asset allocation recommendations during a period covering more than 21 years (June 1980 - November 2001). Newsletters change their asset mix between equity and cash using relatively simple rules that are strongly influenced by past market returns while macro-economic variables have only a very weak influence on their asset allocation decisions. On aggregate, newsletters do not outperform a passive investment strategy but there exist well-defined newsletter sub-groups (active newsletters, contrarian newsletters) that exhibit market-timing ability. Furthermore, when we examine the recommendations of individual newsletters at a higher frequency (daily as opposed to monthly), we find considerable evidence of timing-ability. There is also evidence of persistence in newsletters' performance and a trading strategy that follows the average recommendations of newsletters that have performed well in the past 10 months is capable of outperforming the market on a risk-adjusted basis (the annual over-performance is 2.56%)."
\citet{KumarPons02} analyzed the behavior and performance of 353 investment newsletters that made asset allocation recommendations during a period covering more than 21 years (June 1980 - November 2001). On aggregate the newsletters failed to outperform a passive investment strategy, but active newsletters and contrarian newsletters exhibited market-timing ability. When they examined the recommendations of individual newsletters at a higher frequency (daily as opposed to monthly), they found considerable evidence of timing-ability. There was also evidence of persistence in newsletters' performance and a trading strategy that followed the average recommendations of newsletters that have performed well in the past 10 months is capable of outperforming the market on a risk-adjusted basis (the annual over-performance is 2.56%).
Abstract: "This paper analyzes the equity-portfolio recommendations made by investment newsletters. Overall, there is no significant evidence of superior stock-picking ability for this sample of 153 newsletters. Moreover, there is no evidence of abnormal short-run performance persistence ("hot hands"). The comprehensive and bias-free transactions database also allows for insights into the precision of performance evaluation. Using a measure of precision defined in the paper, a transactions-based approach yields a median improvement of 10 percent over a corresponding factor model. This compares favorably with the precision gained by adding factors to the CAPM."
\citet{Metrick99} analyzed the equity-portfolio recommendations made by 153 investment newsletters. Overall, there was no significant evidence of superior stock-picking ability and no evidence of abnormal short-run performance persistence (``hot hands'').