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Small investors risk losses buying top gainers -study
NEW YORK, March 27 |
NEW YORK, March 27 (Reuters) - Small investors should beware of buying the market's top-performing stocks ahead of earnings reports, according to a study released on Thursday.
Stocks with the biggest 12-month percentage gain had an average market-adjusted return of 1.58 percent in the week before announcing their quarterly results, but fell 1.86 percent in the five days following the results, professors at UCLA Anderson School of Management found in their study of data from 1971 to 2005.
The average pre-announcement change for all stocks was a gain of 0.3 percent, while the average market-adjusted post-announcement gain was 0.1 percent.
"Smaller investors, faced with limited time and resources, are more likely to invest in stocks that draw their attention," the study's authors wrote. "Among stocks capturing these investors' attention are arguably those that have increased sharply in price."
For investors who bought shares of recent top performers on the final day before earnings were announced, they had a loss on average close to 2 percent a week later and were down 1.5 percent on average a month later. (Reporting by Jennifer Coogan; Editing by Jan Paschal)
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