Practical analysis for investment professionals
20 December 2012

Poll: Do Wall Street’s Sell-Side Market Forecasts Have Value?

Posted In: Equity Investments

In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked readers whether the year-ahead market forecasts traditionally circulated by Wall Street’s sell-side firms have value to professional investors. Almost a year ago we also explored this topic in “Forecast Fatigue: What’s the Value of Annual Market Predictions?

Poll: Do annual markets forecasts commonly circulated by Wall Street’s sell-side have value to professional investors?
Poll Results: Do annual markets forecasts commonly circulated by Wall Street’s sell-side have value to professional investors?

Over 90% of respondents to this week’s poll consider the annual market forecasts that Wall Street’s sell-side firms typically roll out this time of year, often in the form of “Top 10” lists, to have little to no value. Nevertheless, nearly two-thirds of respondents do regard the predictions as, if nothing else, interesting to read. At the same time, 26% of respondents look at the forecasts as nothing more than marketing gimmicks. A distinct minority, about 8% of respondents, find Wall Street forecasts to be helpful in positioning their portfolios for the year ahead (presumably in concert with their own independent judgment and analysis).

What is Wall Street’s track record when it comes to picking stocks? Well, a 1995 study by Hemang Desai and Prem C. Jain examined the performance of stock recommendations from Barron’s Roundtable from 1968 to 1991, and found the excess returns to be essentially zero. Despite being of limited utility, annual forecasts are probably here to stay, as they’ve proven themselves to be effective marketing tools, and they appeal to the herding instinct of investors. And, of course, they can also occasionally include a winning idea or two.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

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