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The market versus the analyst: Biases and predictive ability

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  • Carter, Richard B.
  • Strader, Troy J.

Abstract

Using the end of the quiet period (QPX) after an IPO as a venue for testing, we examine the long-run predictive ability of analysts and the market. Not only do we find that the analysts are reasonably good at predicting returns for at least a year, we also find that the market in general is at least as good--even after adjusting for the analysts' recommendations. Separating the QPX market reaction into retail-dominated versus institutional-dominated - based on trade size - we find consistent evidence that only institutional-dominated reactions are positively related to longer-run return. When we examine 5-year survival prediction, we again find that only the institutional-dominated QPX reaction is positively related to survivability. There was no evidence that analysts were able to predict 5 years survival.

Suggested Citation

  • Carter, Richard B. & Strader, Troy J., 2009. "The market versus the analyst: Biases and predictive ability," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 398-416, May.
  • Handle: RePEc:eee:quaeco:v:49:y:2009:i:2:p:398-416
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    References listed on IDEAS

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