Active Portfolio Management, Implied Expected Returns, and Analyst Optimism
This paper investigates whether implied expected returns based on the approach of CLAUS/THOMAS (2001) can be implemented in active portfolio management. This approach uses analysts' forecasts to derive return expectations by equating the present value of expected cash-flows to the current market price. It is found that active investment strategies which maximize implied expected returns significantly outperform a passive index investment. A significant part of this outperformance can be explained by the difference between the implied expected return and the return expectation justified by the CAPM. The empirical results suggest that a substantial part of this difference can be attributed to an optimism bias in analysts' forecasts. Copyright Swiss Society for Financial Market Research 2005
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 19 (2005)
Issue (Month): 3 (October)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/business+%26+management/journal/11408/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jacob, John & Lys, Thomas Z. & Neale, Margaret A., 1999. "Expertise in forecasting performance of security analysts," Journal of Accounting and Economics, Elsevier, vol. 28(1), pages 51-82, November.
- Harrison Hong & Jeffrey D. Kubik, 2003. "Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts," Journal of Finance, American Finance Association, vol. 58(1), pages 313-351, 02.
- John C. Easterwood & Stacey R. Nutt, 1999. "Inefficiency in Analysts' Earnings Forecasts: Systematic Misreaction or Systematic Optimism?," Journal of Finance, American Finance Association, vol. 54(5), pages 1777-1797, October.
- Peter Easton, 2002. "Using Forecasts of Earnings to Simultaneously Estimate Growth and the Rate of Return on Equity Investment," Journal of Accounting Research, Wiley Blackwell, vol. 40(3), pages 657-676, 06.
- Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
- Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
- Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-273, April.
- Michaely, Roni & Womack, Kent L, 1999. "Conflict of Interest and the Credibility of Underwriter Analyst Recommendations," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 653-686.
When requesting a correction, please mention this item's handle: RePEc:kap:fmktpm:v:19:y:2005:i:3:p:261-275. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.