The impact of investment recommendation on stock return ...

The Impact of investment recommendations on stock return: Comparative study between International and Emerging markets Osama Wagdi; PH.D. [email protected] Lecturer of Finance, Financial institution department, Faculty of Management; Modern university of technology and information(MTI) Cairo; Egypt

Ahmed Amin

Amani Ayman

Marina Nagi

[email protected]

[email protected]

[email protected]

Mayar Osama

Mohamed Hosny

[email protected]

[email protected]

Financial institution department, Faculty of Management; Modern university of technology and information (MTI); Students Cairo; Egypt

Abstract The present research aims to analysis the impact of investment recommendation on stock return; the populations of the study are Egypt exchange (EGX) ; the National Association of Securities Dealers Automated Quotations exchange (Nasdaq) & New York stock exchange (NYSE); the period from (2012) to (2016), Finally, There is a weak significant impact of investment recommendation on stock return for both markets; but there a different impact between International and Emerging markets, the researchers can justify it to different of market characteristics.

Keywords Stock Return, Stock Market; International markets; Emerging markets ;Egyptian Exchange, New York Stock Exchange, Investment Recommendation, Market Value, Fair Value, EGX, NYSE

Introduction: Investment decision, by itself, is not a complicated one, as once we manage to consider all aspects of risks associated with the investment decision and to

estimate its expected returns, there will be no difficulty to make a proper decision regarding the proposed investment. The main problem in making any investment decision is the ability to consider all aspects of risks

Electronic copy available at: https://ssrn.com/abstract=2971712

The Impact of investment recommendations on stock return: Comparative study between International and Emerging markets

that the investment will expose to (Helmy & Wagdi,2016). So; there is a target of people whom have benefits from the recommendations are the investor because they start to take their decisions if they need to buy, sell, or hold. These recommendations are issued through the financial institution. The types of investment recommendation include Buy, sell, and hold, When the fair value of common stock more than their market value; the investment recommendation will be Buy; but When the fair value of common stock less than their market value; the investment recommendation will be Sell; if the fair value of common stock the same their market value; the investment recommendation will be Hold The analysis use some methods to calculation a fair value; these methods include: Present Value of Cash Flows (PVCF){ such as: Present value of dividends (DDM); Present value of free cash flow to equity (FCFE); Present value of free operating cash flow to the firm (FCFF)} and Relative Valuation Techniques{such as: Price/earnings ratio (P/E); Price/cash flow ratio (P/CF); Price/book value ratio (P/BV) }

emerging markets like (Brown, et. al.2016). Other side; the researchers found some studies related to fair value and investment Recommendations like (Bradshaw,2004), (Mark 2009), (Lawrence and Kelly 2013), in the last, the researcher found some studies related to conflicts and interest from stock recommendations (Mokoalel, Taffler, &Agarwal,2009)

Literature review

Research hypothesis

The researchers found some studies related to investment Recommendations, many studies going to applied in Global markets like (Gottschlich, and Hinz, 2014)(Lin,& Wu, 2016) (Hobbs,Kovacs,& Sharma, 2012) (Cornett, Tehranian, & Yalçın,2007), other studies going to applied emerging markets like (Bjerring et. al;1983) (Antônio, Lima, & Junior, 2015), and the last studies going to make A comparison between global markets and

From literature review, the researchers make a next hypothesis Hypothesis No.1

Research problem From literature review, the researchers found there are relationship between investment recommendations and stock return, so we have next questions 1) Does investment recommendation make a return for investor? 2) Is there an impact of investment recommendation on stock return in Emerging markets? 3) Is there are an impact of investment recommendation on stock return on Emerging markets? 4) Is there a different impact of investment recommendation on stock return between International and Emerging markets?

There is no impact of investment recommendations on stock return in Emerging markets Hypothesis No. 2 There is no impact of investment recommendations on

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Electronic copy available at: https://ssrn.com/abstract=2971712


from 2012 to 2016 for Juhayna Food Industries SAE (JUFO); Ezz Steel SAE (ESRS); Telecom Egypt (ETEL); Ghabbour Auto SAE (AUTO), Elsewedy Electric Co SAE (SWDY); Maridive for Oil Services (MOIL); Oriental Weavers Carpet (ORWE); Sixth of October for Development and Investment (OCDI); Egyptian Financial Group Hermes Holding (HRHO); Abu Dhabi Islamic Bank Egypt (ADIB)

stock return in International markets Hypothesis No.3 There is no different impact of investment recommendation on stock returns between International and Emerging markets

Research objectives The main objective for the research is analyzing the impact of investment recommendation on stock return in International and Emerging markets and Compare this impact.

Test Hypothesis No.1 To measure the significant impact of investment recommendations on stock return in Emerging markets, the researchers use regression analysis.

Research methodology

Table No. 1

The research used the Quantitative survey method to analyst the investment recommendation on stock return.

Test Hypothesis No.1 Output Model Summary

Research populations

Model 1

R .273a

R Square .074

Adjusted R Square .073

St d. Error of the Estimat e .8408

a. Predictors: (Constant), R_EG

The research populations are Egypt exchange (EGX) and New York stock exchange (NYSE).

ANOVAb

Model 1

The research used the survey for investment recommendation at NYSE & Nasdaq from 2012 to 2016 for McDonald's Corporation (MCD); Facebook, Inc. (FB); The Walt Disney Company(DIS); Intel Corporation (INTC); NIKE, Inc. (NKE) , Visa Inc.(V); The Coca-Cola Company(KO); Verizon Communications Inc. (VZ) ; International Business Machines Corporation (IBM), Exxon Mobil Corporation (XOM)

Regression Residual Total

Sum of Squares 59.982 747.277 807.260

df 1 1057 1058

Mean Square 59.982 .707

F 84.843

Sig. .000a

a. Predictors: (Const ant ), R_EG b. Dependent Variable: HR_EGT

Source:Statistical Package for the Social SciencesOutput

From table of ANOVA; The researchers found a significant impact of investment recommendations on stock return in Emerging markets at level (1%), and this impact explain 7.4% from stock return in Emerging markets

Hypothesis No. 2 To measure the significant impact of investment recommendations on stock return in International markets, the researchers use regression analysis.

The researchs used the survey for investment recommendation at EGX -2-


Results

Table No. 2

A. Descriptive Results

Test Hypothesis No.2 Output Model Summary

Model 1

R .228a

R Square .052

St d. Error of the Estimat e .7453

Adjusted R Square .051

a. Predictors: (Constant), R_USA ANOVAb

Model 1

Regression Residual Total

Sum of Squares 32.055 587.131 619.186

df 1 1057 1058

Mean Square 32.055 .555

F 57.708

Sig. .000a

a. Predictors: (Const ant ), R_USA b. Dependent Variable: HR_USAT

Source: Statistical Package for the Social Sciences Output

From table of ANOVA; The researchers found a significant impact of investment recommendations on stock return in International markets at level (1%), and this impact explain 5.2% from stock return in International markets. Hypothesis No.3 To measure the significant different impact of investment recommendation on stock return between International and Emerging markets, the researchers use Mann-Whitney test. Table No. 3 Test Hypothesis No.3 Output Test Statisti csa T_F Mann-Whitney U Wilcoxon W Z Asy mp. Sig. (2-t ailed)

29721.000 46011.000 -8.606 .000

a. Grouping Variable: MARKET

From table of Mann-Whitney test; the researchers found a significant different impact of investment recommendation on stock return between International and Emerging markets at level (1%).

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1. From quantitative survey, the researchers found a different on investment recommendation between Egypt exchange (EGX); the National Association of Securities Dealers Automated Quotations exchange (Nasdaq) & New York stock exchange (NYSE). 2. From quantitative survey, the researchers found a different weight of investment recommendation types Buy higher than sell and hold B. Statistical Results 1. Through regression analysis; the researchers found a significant impact of investment recommendations on stock return in Egypt exchange (EGX) at level (1%), and this impact explains 7.4% from stock return in Egypt exchange (EGX); so this impact is weak. 2. Through regression analysis ;The researchers found a significant impact of investment recommendations on stock return in New York stock exchange (NYSE) at level (1%), and this impact explain 5.2% from stock return in New York stock exchange (NYSE); so this impact is weak. 3. Through Mann-Whitney test; the researchers found a significant different impact of investment recommendation on stock return between Egypt

The Impact of investment recommendations on stock return: Comparative study between International and Emerging markets -

exchange (EGX) & New York stock exchange (NYSE) at level (1%)the researchers can justify it to different of market characteristics the size of market and the market activities

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