Stock Price Reactions to Securities Recommended in Business Week\u27s “Inside Wall Street”

The price behavior of stocks of firms that were favorably mentioned in the “Inside Wall Street” column in Business Week are studied. These firms have been the subject of rumors or have been recommended by analysts or brokerage houses and, therefore, their mention in Business Week constitutes dissemination of secondary information. Positive, significant excess returns are observed the day prior to the publication date, the publication date, and the two days after publication. Positive, significant excess returns are observed for long‐term holding periods prior to the publication date, while negative, significant excess returns are observed for the post‐publication holding periods. The observations appear to be consistent with the price performance of firms that might have been subject of either rumors or recent recom‐mendations by analysts or brokerage houses. The results suggest that secondary information is of value only to low transaction cost, short‐term traders. Investors who buy for the longer term based on secondary information generally receive below market rates of return