New York – After reviewing performance of research providers for a number of time periods, it is interesting to see what the data might say about research providers as a whole. The question might be one of research consistency as we have reviewed in the past. Another aspect of research accuracy is the degree to which the returns vary over the business cycle. We use buy recommendation returns derived from the Investars performance database to explore these issues.
Integrity reviewed quarterly performance data from Q2 2006 to Q2 2009 and isolated 2 quarters—the one with the weakest return data and the one with the strongest return data. The weakest returns were generated in Q3 2008, while the strongest were generated in Q3 2007.
The chart below shows both the weakest and the strongest quarters to see if the dispersion of returns is less during an up market than a down market and how clustered together the returns for each of these events.
The results of the analysis are somewhat surprising in that the two distributions are fairly similar. The stronger return data set has a more clustered return that does the weaker returns data set. This is as would be expected before the fact. The interesting result of the analysis is in the summary statistics. For the stronger return data set (Q3 2007), the average return across all research providers was 6.72 basis points per day (bpd), with a standard deviation of 6.92 bpd. For the weaker data set (Q3 2008) the average returns across all RPs was -15.9 bpd, with a standard deviation of 4.21 bpd.
The fact that the standard deviation of the returns was less when the returns were weakest is somewhat counter-intuitive, though there may be less buy recommendation in the weaker period that may need to adjusted for in the analysis. Further analysis of this phenomenon will be explored in subsequent blogs, where we will look at the dispersion of the overall research performance including buys and sells.
Note: The data for this report is sourced from Investars, A performance measurement and research management services company. The analysis and conclusions are those of Integrity Research Associates.