Evaluating Value of brokers' recommendations in the Thai Market

Abstract

This study evaluates the value of stock recommendations provided by brokers and sub-brokers in the Thai market. Using weekly survey data from Managers Information Services from March 7, 1994 to March 3, I 997, the study can find significantly positive price reaction to the recommendations However, the price fell after the recommendation period Investors could benefit from the recommendations only if they received the recommendations early and held the stocks for a short period. The downward price drift resulted partly from the brokers' loyal choice for high-beta stocks even in a bearish market, thereby indicating their poor market timing ability. Further analyses suggest that the brokers did not demonstrate stock selection ability. The positive price reaction in the recommendation period was due to the price pressure effect on recommended stocks. So, the recommendations necessarily induced excessive volatility and destabilized the market.