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Student Research Conference
Evaluating the Performance of Stocks Recommended by Investor’s Business Daily
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Student Research Conference
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Title
Evaluating the Performance of Stocks Recommended by Investor’s Business Daily
Usage & Reproduction Rights
http://rightsstatements.org/vocab/InC/1.0/
Type
Video recording
URI / Handle
http://hdl.handle.net/1961/muislandora:2980
Created
2015-01-01T00:00:00Z
Abstract
This research project evaluates the performance of the Investor’s Business Daily (IBD)’s recommended stock list compared to the performance of broad stock market indexes. The IBD list is a weekly list of stock recommendations that is published the IBD newspaper. The purpose of this study is to prove the Efficient Market Hypothesis (EMH). The efficient market hypothesis states that the best performance the common individual investor can achieve is to match the market. “The EMH generally believes that securities markets are extremely efficient in reflecting information about individual stocks an about the stock market as a whole. The accepted view is that when information arises, the news spreads very quickly and is incorporated into the process of securities without delay.”1This hypothesis affects the way investors behave. If the market were to be so efficient, then there would be no need to hire fund managers and financial advisors to make a portfolio receiving a commission fee; investors can rather invest in market indexes. In this research project, if the Efficient Market Hypothesis holds to be true, then the IBD list as a portfolio should not be able to outperform the market.There are two methods used in this study: comparing the 1-month, 3-month, and 6-month return of this portfolio with the return of the market captured by the return of market indexes. (NASDAQ 100 and S&P 500 are the two market indexes used in this study) The second method is to utilize the CAPM (Capital Asset Pricing Model)formula to obtain the expected rate of return of the specific stocks and compare them with the actual 1-month, 3-month and 6-month return. If the expected rate of return is greater than the actual return, it means that the company did not perform as well as what is expected by the investors who based their expectations on the market. In this project, I found that the stock market indexes outperformed the IBD list portfolio, and expected rate of return derived from the CAPM formula was greater than the actual return of the IBD portfolio. My research supports the Efficient Market Hypothesis by reflecting “real-world” out performance of the market indexes over the IBD portfolio. It suggests that it is very difficult to beat the market, and investors should be careful when taking advice from investment newspapers such as the Investor’s Business Daily.
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