
	SDSU Research Shows Stock Analysts’ Recommendations to Investors Are Misleading SAN DIEGO (December 15, 2008) – The College of Business Administration at San Diego State University (SDSU) announced today that research conducted at the college suggests that the “buy”, “hold” and “sell” recommendations from stock market analysts are frequently inaccurate and may even be deceptive due to conflicts of interest on the part of the analyst. The study was done on analyst performance for the Dow Jones Industrial Average and the Standard & Poor’s 500 Index from January, 1999 to December, 2005. Research conducted by SDSU marketing professor, Dr. William Baker, with assistance from Mario Ramoz, indicated that stocks given a “buy” rating did not outperform stocks with “hold” or “sell” ratings. In fact, an analysis of the Standard & Poor’s 500 Index showed stocks with “sell” ratings actually outperformed those with “buy” recommendations by a percentage basis by 2 to 1 margin. Further results showed that 51 percent of individual investors with online trading accounts reported that they were influenced by analyst recommendations at least some of the time. Eight in ten of those same investors “moderately” or “strongly” agreed with the statement that “stocks with ‘buy’ ratings outperformed stocks with ‘hold’ or ‘sell’ ratings”. “Investor reliance on analyst recommendations with little or no value is more harmful than consumers relying on false product advertising,” said Baker. “In fact, it may be much worse because while false advertising may affect one product purchase, deceptive analyst information can affect an individual’s financial security,” The research also concluded that the Sarbanes-Oxley Act of 2002, which enacted and enforced regulations to protect investors from unscrupulous practices, has had no effect on the accuracy of the ratings. Baker’s research also concluded that omission of information by the analysts could constitute deceptive practices as defined by the Federal Trade Commission (FTC) and he recommends that the FTC use its authority to investigate the issue of omitted or deceptive information distributed by stock analysts. “If analyst recommendations are deemed deceptive, then the FTC can require disclosure notifications regarding their accuracy to accompany their publication,” said Baker. “Disclosure would permit investors to weight the recommendations in their decision making process accordingly.”

SDSU Research Shows Stock Analysts’ Recommendations to Investors Are Misleading

SAN DIEGO (December 15, 2008) – The College of Business Administration at San Diego State University (SDSU) announced today that research conducted at the college suggests that the “buy”, “hold” and “sell” recommendations from stock market analysts are frequently inaccurate and may even be deceptive due to conflicts of interest on the part of the analyst. The study was done on analyst performance for the Dow Jones Industrial Average and the Standard & Poor’s 500 Index from January, 1999 to December, 2005.

Research conducted by SDSU marketing professor, Dr. William Baker, with assistance from Mario Ramoz, indicated that stocks given a “buy” rating did not outperform stocks with “hold” or “sell” ratings. In fact, an analysis of the Standard & Poor’s 500 Index showed stocks with “sell” ratings actually outperformed those with “buy” recommendations by a percentage basis by 2 to 1 margin.

Further results showed that 51 percent of individual investors with online trading accounts reported that they were influenced by analyst recommendations at least some of the time. Eight in ten of those same investors “moderately” or “strongly” agreed with the statement that “stocks with ‘buy’ ratings outperformed stocks with ‘hold’ or ‘sell’ ratings”.

“Investor reliance on analyst recommendations with little or no value is more harmful than consumers relying on false product advertising,” said Baker. “In fact, it may be much worse because while false advertising may affect one product purchase, deceptive analyst information can affect an individual’s financial security,”

The research also concluded that the Sarbanes-Oxley Act of 2002, which enacted and enforced regulations to protect investors from unscrupulous practices, has had no effect on the accuracy of the ratings.

Baker’s research also concluded that omission of information by the analysts could constitute deceptive practices as defined by the Federal Trade Commission (FTC) and he recommends that the FTC use its authority to investigate the issue of omitted or deceptive information distributed by stock analysts.

“If analyst recommendations are deemed deceptive, then the FTC can require disclosure notifications regarding their accuracy to accompany their publication,” said Baker. “Disclosure would permit investors to weight the recommendations in their decision making process accordingly.”