Abstract
ONE OF THE BETTER known investment advisory services is the Value Line Investment Survey. An unresolved debate has been in progress in the literature for a decade as to whether the performance of the Value Line Investment Service is inconsistent with the Efficient Market Hypothesis. For example, Black [2] states that the VL system can produce extra returns even when transaction costs are considered, but he does not report his exact test procedure or any quantitative results of his study. On the other hand, Kaplan and Weil [10, 11] do not believe that VL can generate abnormal returns. We shall show in the following sections that the VL system represents a borderline case. When transaction costs are neglected, abnormal returns are obtained. When realistic transaction costs are used, active trading according to VL recommendations does not yield abnormal returns. For a Buy-and-Hold policy, however, VL recommendations do yield abnormal returns, even when transaction costs are considered.
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