Hot Stocks? Not Necessarily
Companies that win kudos for their growth don't necessarily continue to perform to such high expectations, according to a study by financial researchers.
At three universities, researchers studied 732 companies that BusinessWeek had characterized as "hot growth companies." They found that although the companies' growth was hot before the magazine coverage, it didn't stay hot afterward.
An index of the companies' stocks rose more than 4 percent per month for the 36 months before the coverage, but it rose only about 1 percent per month in the 36 months after. The "hot growth" stocks returned 81 percent more than an equally weighted index from the Center for Research in Security Prices before the news coverage, but 17 percent less than the center's index after coverage.
The research by W. Scott Bauman of Northern Illinois University, C. Mitchell Conover of the University of Richmond in Virginia and Don R. Cox of Appalachian State University is slated to appear in the Journal of Financial Research.
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