Broker recommendations and Australian small-cap equity fund management

Carole Comerton-Forde*, David R. Gallagher, Joyce Lai, Terry Walter

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

4 Citations (Scopus)


This study examines whether the abnormal performance of active Australian small-cap equity fund managers is associated with broker recommendations. Our evidence supports the investment value of broker recommendations, showing significant abnormal returns (ARs) both pre- and post-broker recommendations. We find that when a factor-mimicking portfolio based on broker recommendations is added to a Carhart (1997) model, annual alphas are reduced by 48 basis points. Using transaction-level data, buy trades following broker recommendations earn significant cumulative ARs of 1.56 per cent after 60days. Overall, we find that broker recommendations account for an economically significant component of alphas.

Original languageEnglish
Pages (from-to)893-922
Number of pages30
JournalAccounting and Finance
Issue number4
Publication statusPublished - Dec 2011
Externally publishedYes


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