Sell-side not a bunch of snake-oil salesmen after all
Jul 11th, 2007 | Filed under: CAPM / Alpha TheoryRegular readers may remember an academic study we told you about in April on a method of measuring a fund manager’s ”reliance on pubic information” or RPI (Crystal ball discovered? New model forecasts manager success.)
In that study, academics suggested that managers should be measured not against the market portfolio, but rather against the average active bets of sell-side analysts. In essence, these researchers proposed a passive benchmark made up of sell-side analysts’ picks. Any return over that passive benchmark could then be declared as value-added (basically, alpha).
The study concluded that managers who stray more from sell-side stock picks were more likely to outperform than those who simply took the sell-side’s advice whenever it was offered.
So chalk one up for good old-fashioned internal buy-side research.
But the June 23rd edition of The Economist cited a recent study that suggested sell-side advice isn’t so bad after all. The study, by researchers at Harvard and the University of North Carolina concluded that – contrary to popular opinion – sell-side analysts are actually more accurate and less optimistic than their buy-side peers.
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I thought naked capitalism’s article made a good pair.
(and so have commented both as such
–Q