Independent research firms' recommendations to buy stock outperformed those of investment banks, according to a recent study conducted by three business school professors, including Brad Barber of the UC Davis Graduate School of Management.

The study showed that, between 1996 and mid-2003, "buy" recommendations issued by securities firms with no investment-banking business outperformed the buys issued by analysts at investment banks by an average of about 8 percentage points annually.

In contrast, "hold" and "sell" recommendations coming from investment banks outperformed those of the independent research firms by 4 percentage points annually.

"These results suggest that the underperformance of investment-bank buy recommendations was at least partly due to a reluctance to downgrade stocks whose prospects dimmed during the early 2000s' bear market," said Barber.

Barber, a professor of finance, specializes in studying the psychology of investment and analysts' recommendations. His published works have focused on online stock market trading, gender differences in investment and investment clubs.

"We have to give somewhat of a caveat because this study looked at a short time period," Barber said. "Whether the difference persists into the future depends on the regulatory environment in which the recommendationss are issued."

Barber's co-authors on the study are Brett Trueman, professor of accounting at UCLA's Anderson School of Management, and Reuven Lehavy, assistant professor of accounting at the University of Michigan.