Seeking a Better Portfolio with Industry Recommendations

Sung Jun Park and Taehyun Kim

Global Economic Review, 2019, vol. 48, issue 1, 46-62

Abstract: This paper provides novel evidence that investors can build a better performing portfolio by exploiting industry level consensus recommendations. A minimum variance portfolio, combined with consensus recommendations, yields a higher Sharpe ratio and certainty equivalent returns. A minimum variance portfolio with no short-selling constraint consistently outperforms an equally weighted portfolio when exploiting consensus recommendations, which is an innovation compared to the existing literature. Our results suggest that sell-side analysts and brokers provide valuable information in the financial market and we benefit from incorporating the information in the portfolio optimisation.

Date: 2019
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DOI: 10.1080/1226508X.2018.1553112

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