How brokers are graded
22 March 2010
Starmine measures the performance of brokers in two ways – by the returns of their buy or sell recommendations, and by the accuracy of their earnings estimates.
In the recommendations category, brokers score well if they recommend a ‘buy’ and the stock outperforms the benchmark for Singapore. StarMine uses a market-cap weighted return of all stocks trading and domiciled in Singapore as the yardstick.
Brokers also score well if they recommend a ‘hold’ that stays in line with the benchmark, or a ‘sell’ that underperforms the benchmark.
StarMine tracks brokers’ recommendations as they are changed throughout the year and it creates a composite score from how each recommendation did.
In the category for earnings forecasts, brokers are matched against their peers. They score well for issuing estimates that are timely, significantly different from consensus, and more accurate than consensus.
StarMine will look at the broker’s absolute forecast error and error compared with other brokers’, among other factors.
StarMine then computes scores on each stock that a research firm covers. It aggregates the scores to arrive at an overall grade for the broker in each category.
StarMine’s broker rankings for 2010 were based on the period Jan 1-Dec 31, 2009. Firms need to cover a minimum number of stocks in a given stock set to qualify.