Stocks with Outperform Ratings Beat the Market
Several flaws immediately jump out, all potentially fatal to the conclusion and title:<p>1. &quot;We will do so by removing outliers in the 10th and 90th percentiles.&quot; you can&#x27;t remove outliers when investing unless you have a time machine<p>2. Their &quot;starting price&quot; includes an average of 10 days, 5 of which are before the analyst releases the recommendation. Again, to buy before the release requires a time machine (or inside information). Suppose a stock is at $50 for 5 days, an analyst releases a $75 target, stock jumps to $60, then hits $70 over the next 12 months. The gain based on the average of $55 would be $70&#x2F;$55= 27%. But the average based on what price you could actually buy it at is $70&#x2F;$60= 16%.<p>3. They narrow down analysts apparently a second time to pick out only the top 10, which seems to be distinct from the first outlier removal (not entirely clear what&#x27;s being removed in either case.)<p>I see no statistical tests relating to removing outliers, significance, etc. This is all besides the considerable degrees of freedom (cutoff price, cutoff marketcap, 100 rating minimum for analysts which seems to have been implemented after collecting data, etc).