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Relative valuation and analyst target price forecasts

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  • Da, Zhi
  • Schaumburg, Ernst

Abstract

We document that within industry relative valuations implicit in analyst target prices do provide investors with valuable information although the implied absolute valuations themselves are much less informative. Importantly, our findings are not merely a small stock phenomenon but apply to the sample of S&P 500 stocks and do not rely on trading at the exact time of announcement. Using a large database of target price announcements from 1997 to 2004, we construct a simple strategy based on target price implied relative valuations and show that the resulting abnormal return is both economically and statistically significant and not easily explained by transaction costs alone.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Markets.

Volume (Year): 14 (2011)
Issue (Month): 1 (February)
Pages: 161-192

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Handle: RePEc:eee:finmar:v:14:y:2011:i:1:p:161-192

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Web page: http://www.elsevier.com/locate/finmar

Related research

Keywords: Target price Relative valuation Return reversal;

References

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Citations

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Cited by:
  1. Stefan Kanne & Jan Klobucnik & Daniel Kreutzmann & Soenke Sievers, 2012. "To buy or not to buy? The value of contradictory analyst signals," Financial Markets and Portfolio Management, Springer, vol. 26(4), pages 405-428, December.
  2. Emre Ozdenoren & Kathy Yuan, 2012. "Stock Market Tournaments," FMG Discussion Papers dp706, Financial Markets Group.
  3. Jan Klobucnik & Daniel Kreutzmann & Soenke Sievers & Stefan Kanne, 2012. "To buy or not to buy? The value of contradictory analyst signals," Cologne Graduate School Working Paper Series 03-03, Cologne Graduate School in Management, Economics and Social Sciences.

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