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Subjective Valuation And Target Price Accuracy

Author

Listed:
  • STEFANO BONINI

    (School of Business, Stevens Institute of Technology, 1 Castle Point Terrace, Hoboken, NJ 07030, USA)

  • VINCENZO CAPIZZI

    (Department of Economics and Business Studies, Università degli Studi del Piemonte, Orientale “Amedeo Avogadro†, Via E. Perrone 18, 28100 Novara, Italy)

  • ALEXANDER KERL

    (Department of Financial Services, Justus-Liebig University of Giessen, Licher Straße 74, D-35394 Gießen, Germany)

Abstract

In this paper, we analyze how subjective adjustments to baseline models by analysts affect the forecasting accuracy. For a panel of analyst reports, we show that target price forecasts that deviate significantly from simple multiple-based pseudo-target prices are (ex-post) more accurate. By controlling for various stock and broker characteristics, we also demonstrate that our results are not driven by the degree of sophistication of the valuation models. Furthermore, we show that investors know about this increased informativeness of forecasts as the abnormal market return around target price revisions is significantly higher if analysts deviate from simple pseudo-target prices when issuing their forecasts.

Suggested Citation

  • Stefano Bonini & Vincenzo Capizzi & Alexander Kerl, 2022. "Subjective Valuation And Target Price Accuracy," Journal of Financial Management, Markets and Institutions (JFMMI), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-31, June.
    • Handle: RePEc:wsi:jfmmix:v:10:y:2022:i:01:n:s2282717x22500050
    DOI: 10.1142/S2282717X22500050
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    More about this item

    Keywords

    Target prices; equity research; forecast accuracy; multiple valuation;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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