Returns to Australian Newsletter Recommendations

We investigate the recommendations made by four high profile Australian investment newsletters during 2001. Five issues are investigated: (1) The clarity of newsletter recommendations; (2) the return that might have been earned by following newsletter recommendations; (3) the liquidity of shares recommended; (4) the relative success of recommendations on small, medium and large stocks; and (5) the extent newsletters make recommendations consistent with momentum and contrarian investing strategies. We find that newsletters contain a varying mix of clear and less clear recommendations. The clear recommendations we evaluated earned exceptionally high return, relative to control samples matched on size and holding period and relative to the ASX300 index. The exceptional performance was driven by recommendations on stocks ranked outside the top 150, by market capitalization, and was consistent with a momentum based selection strategy.