Do investors mistake a good company for a good investment?

Peter Antunovich and David S. Laster

No 60, Staff Reports from Federal Reserve Bank of New York

Abstract: Do investors confuse the quality of a firm with its attractiveness as an investment? If so, shares of well-run companies will be bid up too high and subsequently earn negative abnormal returns. Our analysis of Fortune magazine?s annual survey of \\"America?s Most Admired Companies\\" for 1983-96 finds the opposite. A portfolio of the most admired decile of firms earns an abnormal return of 3.2 percent in the year after the survey is published and 8.3 percent over three years. The least admired decile of firms earns a negative abnormal return of 8.6 percent in the nine months through the end of the year, more than half of which is reversed in the first quarter of the following year. The magnitude of these abnormal returns and their persistence over five years suggest that well admired firms are not overpriced. The timing of returns to least admired firms provides evidence of window dressing.

Keywords: Investments (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (4)

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