ANALYSIS OF HOCK LOCK SIEW RECOMMENDATIONS

Abstract

Considerable studies have been conducted on stock markets all over the world to investigate the performance of published analysts' recommendations. However, the results of these studies have been mixed. In Singapore, smaller studies of similar type have been limited except for those by Dawson (1984 and 1985) and Ariff, Goh and Johnson (1988). In particular, no study has been done to investigate the performance of any financial column that publishes analysts' recommendations in the public media. As such, this study aims to contribute further to the financial literature by investigating the performance of the Hock Lock Siew column in the Business Times (a widely circulated published medium). The Hock Lock Siew column is a regular feature in the Business Times. It contains opinions and recommendations provided by the columnists. The questions addressed in this study are: (I) How does a firm's stock price react to information appearing in the column? (2) Can an investor benefit from short-term trading based on the advice contained in the column? (3) Does this column gain credibility and increase investors' abnormal returns over time? The first question addresses the issue of market efficiency. Results of the study show that a firm's stock price does not react to HLS recommendations on announcement date thereby suggesting that Singapore stock market is semi strong form efficient. The second question addresses the economic value of Hock Lock Siew to investors. It is observed that investors cannot make significant cumulative abnormal returns from following Hock Lock Siew recommendations if they act on the announcement date and cumulate their abnormal returns over a short-term period of 20 days. As for the third question, the results show that there is an absence of credibility effects across time. Hence, investors cannot expect to make higher abnormal returns over time. In conclusion, this paper presents empirical evidence to show that the value of the Hock Lock Siew column lies not in uncovering undervalued or overvalued stocks but in disseminating information rapidly thereby driving stocks to equilibrium.