Performance evaluation with transactions data: The stock selection of investment newsletters

This paper analyzes the equity-portfolio recommendations made by investment newsletters. Overall, there is no significant evidence of superior stock-p icking ability for this sample of 153 newsletters. Moreover, there is no ev idence of abnormal short-run performance persistence ("hot hands"). The com prehensive and bias-free transactions database also allows for insights int o the precision of performance evaluation. Using a measure of precision def ined in the paper, a transactions-based approach yields a median improvemen t of 10 percent over a corresponding factor model. This compares favorably with the precision gained by adding factors to the CAPM.