Journal Article | Journal of Financial Transformation | November 2008

Can Research Committees Add Value for Investors? An Analysis of Lehman Brothers' Ten Uncommon Values® Recommendations

by Boris Groysberg, Paul M. Healy and Yang Gui

Abstract

Since 1949 Lehman Brothers has used an investment committee to select the top ten recommendations made by its analysts each year. We examine the performance of this committee's recommendations and find that on average its selections generated abnormal returns of 2.7% at the recommendation announcement and 4.5% for the remainder of the year. This performance cannot be explained by changes in analyst recommendations and/or target prices that accompany the committee report. Nor was it due to analyst screening ability since the returns were higher than those that earned from investing in analysts' top stock picks that were not selected by the committee. Finally, we find that abnormal announcement returns and trading volume at the report publication are correlated with market-adjusted returns for the prior year's stock selections, suggesting that investors believe that a successful process in one year is likely to be repeated the following year. We believe that these findings are particularly interesting given recent efforts to require firms to use research recommendation committees to improve the quality of research.

Keywords: Forecasting and Prediction; Stocks; Financial Markets; Investment; Investment Return; Governing Rules, Regulations, and Reforms; Performance Expectations; Groups and Teams; Research; Value Creation;

Citation:

Groysberg, Boris, Paul M. Healy, and Yang Gui. "Can Research Committees Add Value for Investors? An Analysis of Lehman Brothers' Ten Uncommon Values® Recommendations." Journal of Financial Transformation 24 (November 2008): 123–130.