Broker Recommendations Research Articles

FACTORS INFLUENCING INDIVIDUAL INVESTORS’ INVESTMENT DECISIONS AT THE DHAKA STOCK EXCHANGE

The goal of the study is to identify the factors affecting individual investors’ investment decisions on the Dhaka Stock Exchange (DSE). To do this, the research also looks at how accounting issues, information obtained from independent sources, financial needs, advocate recommendations, and personal reputation/company reputation compliance may all affect an investor's behavior. Data were collected from Dhaka, Bangladesh. The researcher individually delivered a standardized questionnaire to each respondent in order to collect data. There were 27 items in the survey. SPSS 26 and AMOS 24 are used to analyze the functional data from 300 surveys. The Friedman rank test is used to test the research hypotheses. The study revealed that there does appear to be some association between the factors affecting the DSE investors' decisions to invest. The researcher found that expected dividends, the stock's past performance, collecting information about firms, stock index fluctuations, interest in non-stock investment, investment diversification, obtaining borrowed funds easily, broker recommendations, family members’ opinions, friend or coworker recommendations, the company's public reputation, well-organized financial markets, and the ethics of a firm are the most crucial factors that affect individual investors' investment decisions. The results of this study will help investors comprehend the various choices they will have to make based on their current circumstances and the likely results of each choice. The research will also help the companies identify the factors that will have the biggest impact on investors' behavior in the future, which will affect future strategies and policies.

IPO subscription dynamics: A comprehensive inquiry into the Indian stock market

The Indian IPO market showcased resilience during the global stock market downturn in 2022, emerging as a notable bright spot in regions such as Europe, the Middle East, India, and Africa. As the bullish rally of 2022 persists, Indian stock markets remain enticing for foreign institutional investors in 2023. A resurgence in IPO activity is anticipated, driven by increasing momentum and larger deals that are poised to overcome the constraints of subdued global sentiments and liquidity pressures, addressing the challenges posed by these factors. The study offers insights into factors influencing IPO subscriptions, capitalizing on the context of heightened stock market volatility and optimistic trends in the Indian stock market. A total of 132 IPOs listed on the Indian stock market between April 2019 and March 2023 were analyzed in this study. Multiple Linear Regression was used to assess the strength of the association between several factors outlined in the literature, and the overall subscription. Among the ten variables investigated in the study, it was observed that three variables under the external factors, specifically Grey Market Premium, IPO Rating, and Broker Recommendations, exerted a significant influence on the overall subscription. While other factors such as allocation proportion and issue attributes, were found to have no discernible influence on the overall subscription. The results indicate that the Indian IPO market demonstrates a prevalence of speculative behavior and a stronger reliance on expert recommendations, rather than being primarily driven by IPO characteristics. Acknowledgment Authors acknowledge that the publication fee is funded by Kingdom University, Bahrain.

Does Competition Protect Retail Investors? Role of Financial Advice

The active money management industry has been characterized by both strong competitive pressure from passive investment vehicles and high fees. This paper investigates how the introduction of low-cost index funds affects fund company strategies. The retail mutual fund market is segmented, where unsophisticated investors rely on financial advisers, and sophisticated ones invest directly. Exploiting the staggered entry of low-cost Vanguard index funds as competitive shocks, I show that in response to competition, incumbents sold to self-directed investors reduce their fees by five percent of the mean; however, funds sold with broker recommendations increase their fees by six percent of the mean. The index fund entry also slows the growths of actively managed funds. The responsiveness of broker-sold fund flows to distribution fees increases, suggesting a shift in composition towards less elastic consumers. Further, incumbents increase the degrees of active management. The results illustrate why mutual fund fees decline slowly in the aggregate despite the competition from lower-cost alternatives.

Index Fund Entry and Financial Product Market Competition

The active money management industry is characterized by both strong competitive pressure from passive investment vehicles and high fees. This paper investigates how the introduction of low-cost index funds affects fund company strategies. The retail mutual fund market is segmented, where unsophisticated investors rely on financial advisers and sophisticated ones invest directly. Exploiting the staggered entry of low-cost Vanguard index funds as competitive shocks, I show that, in response to competition, incumbents sold to self-directed investors reduce their fees by 5% of the mean; however, funds sold with broker recommendations increase their fees by 6% of the mean. Index fund entry also slows the growth of actively managed funds. The responsiveness of broker-sold fund flows to distribution fees increases, suggesting a shift in composition toward less elastic consumers. Further, incumbents increase the degree of active management. The results illustrate why mutual fund fees slowly decline in the aggregate despite competition from lower-cost alternatives. This paper was accepted by Gustavo Manso, finance.

Factors Influencing Individual Investors’ Behavior: An Empirical Study of Pakistan Financial Markets

Purpose: The purpose of this study is to determine the factors that influence individual investor behavior in the Pakistani financial markets.Design/methodology/approach: Cronbach's Alpha, Chi square test, Descriptive statistic and Frequency distribution have been used to find the extent of influence of these 30 variables on the investor's behavior of Pakistan financial market.Findings: The most influencing factors in terms of order are expected corporate earnings, dividends paid, stock marketability, condition of financial statements, expected dividends, current economic indicators, past performance of the firm stock, broker recommendations, firm status in industry and get rich quick. The least influencing factors by order are religious reasons, political party affiliation, environmental record, perceived ethics of the firm and family member opinions. Two factors are such that they unexpectedly have least influence on the Pakistani investor's behavior that is religious reasons and family member opinions. One factor that is broker recommendation is unexpectedly highly influence Pakistani investors behavior in making their investment decision.Practical implications: Pakistan is a developing country and due to the volatile nature of market most of the time investors rely on these factors which have been observed in this study. The results of this research are mostly consistent with the evidences in previous studies. This study, hopefully, will help investors to be aware of the impact of these factors in their decision making in the stock market, thus increasing the rationality of investment decisions for enhanced market efficiency.Originality/value: Behavioral finance is relatively a new subject in Pakistan. The study examines the factors influencing individual investor's behavior in Pakistan's financial market. The paper is based on a modified questionnaire administered to 102 investors and their response was measured for five groups of thirty variables. The groups are accounting information, firm image/self-image coincidence, neutral information, advocate recommendations and personal financial needs.

Extracting predictive information from heterogeneous data streams using Gaussian Processes

Financial markets are notoriously complex environments, presenting vast amounts of noisy, yet potentially informative data. We consider the problem of forecasting financial time series from a wide range of information sources using online Gaussian Processes with Automatic Relevance Determination (ARD) kernels. We measure the performance gain, quantified in terms of Normalised Root Mean Square Error (NRMSE), Median Absolute Deviation (MAD) and Pearson correlation, from fusing each of four separate data domains: time series technicals, sentiment analysis, options market data and broker recommendations. We show evidence that ARD kernels produce meaningful feature rankings that help retain salient inputs and reduce input dimensionality, providing a framework for sifting through financial complexity. We measure the performance gain from fusing each domain’s heterogeneous data streams into a single probabilistic model. In particular our findings highlight the critical value of options data in mapping out the curvature of price space and inspire an intuitive, novel direction for research in financial prediction.

International Real Estate Review

Through the implementation of an experimental design, this study examines the effect of buyer demand specification and search patience on the home buying process. We find that there are no significant effects of demand specification on the behavior of brokers and the search results. When the search patience of a buyer is higher, the earnings of the buyer are greater, matching degree is higher, search duration is longer, number of broker recommendations is greater, and attribute competition is fiercer.

Do Analyst Experience, Location and Gender Affect the Performance of Broker Recommendations in Europe?

We examine how broker characteristics impact the performance of their recommendations in Europe. In contrast to extant research, we focus on a non-U.S. sample that post-dates the important regulatory changes of 2003-2004. Our research has three intriguing findings. First, we show that more experienced analysts produce better long recommendations than less experienced analysts. However, the more junior analysts outperform on short recommendations. Second, we find the global analysts outperform local analysts on local stock buy recommendation. However, local analysts have the edge in sell recommendations. Finally, in contrast to recent research, we find no statistical difference between the performance of male and female analysts.

What is the Impact of Financial Advisors on Retirement Portfolio Choices and Outcomes?

The answer depends on how broker clients would have invested in the absence of broker recommendations. To identify counterfactual retirement portfolios, we exploit time-series variation in access to brokers by new plan participants. When brokers are available, they are chosen by new participants who value recommendations on asset allocation and fund selection because they are less financially experienced. When brokers are no longer available, demand for target-date funds (TDFs) increases differentially among participants with the highest predicted demand for brokers. Broker client portfolios earn significantly lower risk-adjusted returns and Sharpe ratios than matched portfolios based on TDFs — due in part to broker fees that average 0.90% per year — but offer similar levels of risk. More generally, the portfolios of participants with high predicted demand for brokers who lack access to brokers comparable favorably to the portfolios of similar participants who had access to brokers when they joined. Exploiting across-fund variation in the level of broker fees, we find that broker clients allocate more dollars to higher fee funds. This finding increases our confidence that actual broker client portfolios reflect broker recommendations, and it highlights an agency conflict that can be eliminated when TDFs replace brokers.

Broker recommendations and Australian small-cap equity fund management

This study examines whether the abnormal performance of active Australian small-cap equity fund managers is associated with broker recommendations. Our evidence supports the investment value of broker recommendations, showing significant abnormal returns (ARs) both pre- and post-broker recommendations. We find that when a factor-mimicking portfolio based on broker recommendations is added to a Carhart (1997) model, annual alphas are reduced by 48 basis points. Using transaction-level data, buy trades following broker recommendations earn significant cumulative ARs of 1.56 per cent after 60 days. Overall, we find that broker recommendations account for an economically significant component of alphas.

Do European Brokers Add any Value Through Recommendations?

We examine whether broker recommendations add value in Europe. In contrast to extant research, we focus on a non-U.S. sample that post-dates the important regulatory changes of 2003/4. Our analysis suggests that European brokers’ recommendations outperform a standard benchmark during the 2005-2009 period. Trade ideas from research sales-people, the people in daily contact with fund managers, provide better performance than recommendations directly from research departments. Our results also indicate that brokers are far better at selecting long ideas than short ideas, and have been for many years. We also show that a simple strategy based on broker ideas would comfortably be in the top quartile of UK pan-European mutual funds for each complete year for which we have data.

Broker Recommendations and Australian Small-Cap Equity Fund Management

This study examines the extent to which the abnormal performance of active Australian small-cap equity fund managers, previously documented by Chen et al. (2010), is associated with broker recommendations. Our empirical evidence supports the investment value of broker recommendations, showing statistically significant cumulative abnormal returns both pre and post broker recommendation dates. We find that a factor-mimicking portfolio based on broker recommendations results in a 48 basis point reduction in annual alphas estimated from a Carhart (1997) four-factor model (from 58 to 54 basis points a month). Using transaction-level data, buy trades following recommendations earn statistically significant cumulative abnormal returns of 1.56 percent after 60 days. Overall, we find evidence suggesting that broker recommendations play an important role in the investment decisions of small-cap fund managers, and these account for an economically significant component of the monthly alphas.

Broker Recommendations and Mutual Fund Trades

We investigate the alignment of mutual fund trades with brokers' recommendations and their associated performance. Using 2,730 funds with 44,315 fund-periods between 1994 and 2005, we find that more than 20% of funds adjust their portfolios in line with brokers' recommendations. However, funds that trade counter to these recommendations, on average, earn superior excess returns. This superior performance is most pronounced in small funds holding less-liquid stocks that trade more actively, and we attribute this to their private information having greater incremental value.

Initiation of brokers’ recommendations, market predictors and stock returns

We study more than 5000 broker recommendations on companies listed on the Australian Stock Exchange, focusing in particular on ‘initiating recommendations’. We find that returns on initiating recommendations are significantly different from zero in the 6 months following the release of the recommendation. We also find that ‘strong buy’ and ‘buy’ recommendations provide better predictions than those formed from market-based variables cited in the literature. In contrast to the short event window studies in the US, there is no significant difference between returns on initiating and continuing recommendations. Mean returns on all categories of recommendations on technology-related companies are negative, reflecting the technology bubble in the period of our study. Finally, variables, such as broker prestige and membership of the Australian All Ordinaries Index have no explanatory power.

The Bombay Stock Exchange: seasonalities and investment opportunities

Investigates whether the Bombay Stock Exchange behaves like an efficient market, or whether it displays a typical seasonal pattern. Takes mean daily returns between 1979 and 1990 to discover by regression that there is a December effect. Considers whether this is because of holidays, broker recommendations or window dressing by mutual fund managers. Notes a weekend effect like the New York Stock Exchange, and considers Bombay to be weak‐form efficient; but points out that banking and transport are nationalized in India but private in the USA. Explains that government regulation, which prevents foreign trading in Bombay or Indian trading on the New York Stock Exchange, has left the Bombay exchange autonomous, less affected by external factors and more by domestic conditions.

Interpretation and Identity: Can the Work Survive the World?

Predictions concerning the end of the world have proven even less reliable than your broker's recommendations or your fondest hopes. Whether you await the end fearfully or eagerly, you may rest assured that it will never come-not because the world is everlasting but because it has already ended, if indeed it ever began. But we need not mourn, for the world is indeed well lost, and with it the stultifying stereotypes of absolutism: the absurd notions of science as the effort to discover a unique, prepackaged, but unfortunately undiscoverable reality, and of truth as agreement with that inaccessible reality. All notions of pure givenness and unconditional necessity and of a single correct perspective and system of categories are lost as well.