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Broker Recommendations and Mutual Fund Trades

Gasbarro, D. and Monroe, G.S. (2007) Broker Recommendations and Mutual Fund Trades. In: 20th Australasian Finance and Banking Conference, 12 - 14 December, Sydney, NSW, Australia

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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.

Publication Type: Conference Paper
Murdoch Affiliation: Murdoch Business School
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