The evaluation on brokerage houses' recommendation performances: A study on leading five brokerage houses

This paper analyzes the investment recommendations provided by the five leading brokerage houses with the highest equity trading volume according to the 2017 annual statistics of Turkish Capital Markets Association – Garanti Yatırım Menkul Kıymetler A.Ş., İş Yatırım Menkul Değerler A.Ş., Yapı Kredi Yatırım Menkul Değerler A.Ş., Ak Yatırım Menkul Değerler A.Ş. and Gedik Yatırım Menkul Kıymetler A.Ş. (in a declining order) – which publish buy or sell recommendations concerning the equities of companies traded at BIST-100 in the timeframe between January 1, 2017 - December 31, 2018 and, explores the impact of the recommendations on stock prices. The study seeks to test that investments made based on recommendations would bring abnormal return and thus, to contradict the semi-strong form market efficiency hypothesis. The analyses were based on the event study methodology and designated the day the brokerage houses announced the recommendation as the event day. The study investigated the difference between the returns earned 15 days before and after the event day and the market return to identify possible abnormal returns. The statistically significant findings obtained as a result indicated that the investors who followed the brokerage houses' buy recommendations were able to secure abnormal returns. This demonstrates that the market in question was not a semi-strong form efficient market given the timeframe covered and the data set used. Despite the observations that sell recommendations of brokerage houses brought negative abnormal return, the tests run as part of the study had not been statistically significant. The results reached suggest that the markets react differently to negative and positive recommendations and lead to the conclusion based on the analysis of the sell recommendations that the semi-strong form market efficiency hypothesis cannot be refuted.