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The Value Line Enigma: The Sum of Known Parts?

Published online by Cambridge University Press:  06 April 2009

James J. Choi
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Abstract

The investment advice encapsulated in the Value Line Investment Survey's timeliness rankings is evaluated from 1965 to 1996 through time-series factor regressions, as well as by comparing recommendations to benchmark portfolios corresponding to their size, book-to-market, and momentum characteristics. In addition, recommendations that have experienced recent earnings surprises are purged to eliminate the effects of post-earnings announcement drift. There is evidence that Value Line recommendations exhibit performance beyond what is predicted by existing models of expected return. However, once transactions costs have been accounted for, it is doubtful profitable abnormal returns could have been realized.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 3 , September 2000 , pp. 485 - 498
Copyright
Copyright © School of Business Administration, University of Washington 2000

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Footnotes

*

National Bureau of Economic Research, 1050 Massachusetts Avenue, Cambridge, MA 02138. I thank Andrew Metrick for invaluable suggestions and guidance, Mark Hulbert for assistance in obtaining the Value Line data and corroboration of my Value Line returns calculations, Leslie Jeng for providing the Compustat quarterly earnings data, and Brad Barber (the referee) for helpful comments, and Value Line for providing the historical rankings data. Any remaining errors are my own.

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