Abstract

A substantial amount of research has accumulated over the past twenty years in support of the semi-strong form of market efficiency theory. This theory asserts that security prices reflect all available public information. In such a market, opportunities to earn abnormal profits should not persist as prices quickly adjust to incorporate new information. Under such conditions, even if an investor possesses superior knowledge about a security and is able to use this knowledge to earn abnormal profits, prices should quickly react; Therefore, by the time this information is published in the financial press, it should not yield excess returns. However, evidence points to the possibility of earning short-term abnormal returns by acting on buy/sell recommendations of analysts when they are published in the U.S. financial newspapers and magazines, and long after they are available to analysts' clients. Using an event-study methodology, this paper found that statistically significant abnormal returns could be earned in Canada by following analysts' recommendations published in the Financial Post "Hot Stock" column. Tests of economic significance proved inconclusive