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Do analysts anchor on public signals in forecasting the target price of disruptive technology firms?

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  • Caylor, Marcus
  • Hong, Duanping
  • Park, Hyungshin
  • Qu, Hong

Abstract

Public signals serve as an anchor for higher order beliefs when forecasting stock price, a target that is determined by the average beliefs of investors. We predict that the anchoring effect is particularly strong when forecasting the stock price of disruptive technology firms, a fundamentally ambiguous target. Consistent with this prediction, we find that analysts’ price forecasts revisions are more responsive to earnings news for disruptive than non-disruptive technology firms. In contrast, this differential responsiveness does not exist for earnings forecasts, as earnings realizations do not depend on the average beliefs of investors.

Suggested Citation

  • Caylor, Marcus & Hong, Duanping & Park, Hyungshin & Qu, Hong, 2023. "Do analysts anchor on public signals in forecasting the target price of disruptive technology firms?," Economics Letters, Elsevier, vol. 228(C).
    • Handle: RePEc:eee:ecolet:v:228:y:2023:i:c:s0165176523002082
    DOI: 10.1016/j.econlet.2023.111183
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    References listed on IDEAS

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    More about this item

    Keywords

    Disruptive technology; Valuation; Analyst forecasts; Anchoring; Higher order beliefs;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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