The immediate price and volume effects of investment advisory services on stocks recommended

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Virginia Polytechnic Institute


The primary purpose of this study was to investigate the immediate price and volume effects or investment advisory services on stocks recommended.

The methodology used in this study consisted of the selection of sixty-four stock recommendations published by three major advisory services, Value Line Investment Service, Moody's Investors Survey, and Standard and Poor's Outlook. The recommendations of Moody's and Standard and Poor’s were divided into strong and weak categories for testing purposes.

Price and volume data for each stock were collected and adjusted for general market movements for a period of fifty-six days--twenty-two days prior to the date of recommendation and thirty-three days after that date. Twenty-one day centered moving averages were computed for each stock from the fifty-six adjusted price and volume observations. Thirty-six price and volume indices were developed for each stock from the ratios of the adjusted price and volume data to its corresponding twenty-one day average.

The price and volume index numbers were then grouped into classifications according to service and according to average daily trading volume. An analysis of variance was utilized to test the data in order to determine the findings.

The findings proved to be inconclusive in showing an immediate price and volume effect in general. The findings did indicate that stocks with a low average daily trading volume appeared to show significant movement as the result of being recommended.