Does Following the Motley Fool’s Recommendations Provide Abnormal Returns?

Sammanfattning

This study examines whether stock recommendations issued by The Motley Fool are able to generate abnormal returns. The analysis uses buy recommendations issued between January 2016 and April 2021, tracking their returns from July 2016 through March 2026. Two portfolios are constructed: one all buy-recommendation portfolio where each buy-recommendation is treated as a separate position, regardless if the stock has been recommended previously, and one portfolio in which only the first issued unique recommendation is included. The portfolio performance is evaluated using a Carhart four-factor model, and an extended Fama-French five-factor model including momentum, referred to as the six-factor model. The results find limited evidence of statistically significant abnormal returns. Estimated alphas are positive, however most alphas across the tested portfolios are statistically insignificant. The alphas that are statistically significant, however, become insignificant when the portfolio is tested for sensitivity by removal of the 1% tails of the recommendation sample. The study therefore fails to reject the null hypothesis that The Motley Fool’s stock recommendations do not generate statistically significant abnormal returns after risk adjustment.