March 16, 2018

An Empirical Analysis of Analysts’ Target Prices: Short-term by Brav A., Lehavy R. PDF

By Brav A., Lehavy R.

Utilizing a wide database of analysts' goal costs issued over the interval 1997-1999, we study non permanent marketplace reactions to focus on cost revisions and long term comovement of goal and inventory prices.We ¢nd a signi¢cant industry response to the data contained in analysts' objective costs, either unconditionally and conditional on contemporaneously issued inventory suggestion and profits forecast revisions. utilizing a cointegration strategy, we study the long term habit of marketplace and objective prices.We ¢nd that, on commonplace, the one-year-ahead objective rate is 28 percentage larger than the present marketplace cost.

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Hence, a target price might re£ect the mean of the analyst’s posterior beliefs regarding the ¢rm’s value, while a recommendation provides additional information regarding the dispersion of these beliefs. We investigate this view as follows. First, we split the sample into two subsets, depending on the type of the recommendation revisions, namely upgrades and downgrades. Then, within each such classi¢cation, we consider the possible recommendation revisions and regress event-day abnormal returns on an intercept as well as on earnings forecasts and target price revisions.

794 An Empirical Analysis of Analysts’ Target Prices 1963 V. Summary and Conclusions Using a large database of analyst price targets, stock recommendations, and earnings forecasts, we examine short-term market reactions to target price announcements and long-term comovement of target and market prices. Consistent with our predictions, we ¢nd that target prices are informative both unconditionally and conditional on contemporaneously issued recommendation and earnings forecast revisions. Moreover, revisions in target prices contain information about six-month postevent abnormal returns.

Sohn, 1990,The Association between revisions of ¢nancial analysts’earnings forecasts and security-price changes, Journal of Accounting and Economics 13, 341^363. Mandelker, Gershon, 1974, Risk and return: The case of merging ¢rms, Journal of Financial Economics 1, 303 ^335. , and P. O’Brien, 1997, Self-selection and analyst coverage, Journal of Accounting Research 35, 167^208. Michaely, Roni, and Kent Womack, 1999, Con£ict of interest and the credibility of underwriter analyst recommendations, Review of Financial Studies 12, 653 ^686.

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An Empirical Analysis of Analysts’ Target Prices: Short-term Informativeness and Long-term Dynamics by Brav A., Lehavy R.


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