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Do sell-side analysts exhibit differential target price forecasting ability?

Author

Listed:
  • Mark T. Bradshaw

    (Boston College)

  • Lawrence D. Brown

    (Temple University)

  • Kelly Huang

    (University of Alabama)

Abstract

We examine the overall and individual analyst performance of 12-month-ahead target price forecasts over the 10 years from 2000 through 2009. Implied target price-based returns exceed actual returns by an average of 15 %, and absolute target price forecast errors average 45 %. At the end of the 12-month forecast horizon, only 38 % of target prices are met, but 64 % are met at some time during the forecast horizon. We find statistically significant but economically weak evidence of persistent differential abilities by sell-side analysts to forecast target prices. Target price announcement period return analyses indicate no differential market reactions to analysts’ target price revisions conditional on their recent target price forecast performance. This finding is consistent with the market understanding that analysts have, at best, limited abilities to persistently provide accurate target price forecasts.

Suggested Citation

  • Mark T. Bradshaw & Lawrence D. Brown & Kelly Huang, 2013. "Do sell-side analysts exhibit differential target price forecasting ability?," Review of Accounting Studies, Springer, vol. 18(4), pages 930-955, December.
    • Handle: RePEc:spr:reaccs:v:18:y:2013:i:4:d:10.1007_s11142-012-9216-5
    DOI: 10.1007/s11142-012-9216-5
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    Keywords

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    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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