Target Price Accuracy Research Articles

Do Analyst Practices and Broker Resources Affect Target Price Accuracy? An Empirical Study on Sell Side Research in an Emerging Market

Do Analyst Practices and Broker Resources Affect Target Price Accuracy? An Empirical Study on Sell Side Research in an Emerging Market

Do Analyst Practices and Broker Resources Affect Target Price Accuracy? An Empirical Study on Sell Side Research in an Emerging Market

Do Analyst Practices and Broker Resources Affect Target Price Accuracy? An Empirical Study on Sell Side Research in an Emerging Market

Analysts Target Price Accuracy and Investors' Reaction: Chilean Stock Market Evidence

The main purpose of this study is to istimate the target price accuracy (TPA) of the Chilean analysts and to find the factors that may affect its accuracy. We alse seek to determine if there exists a direct relationship between the precision level of the research divisions and abnormal returns when a new target price (TP) is issued. The empirical results indicate that 26.2% of TPS (overall) issued were successful. Abnormal returns associated to research divisions with higher accuracy are not observed consistently. Lastly, we find significant abnormal returns when a new TP announced is above (below) to the market consensus.

Financial Analystss Forecast Accuracy: Do Valuation Methods Matter?

This study investigates how different ways to evaluate a company influence the accuracy of the target price. We know that finance theory and professional practice propose alternative approaches to the evaluation of a company. The literature on the relationship between the valuation methods used and target price accuracy is still scant, and the results are inconclusive and contradictory. Coding the valuation methods of 1,650 reports, we find that the accuracy of target prices decreases when the target price is based just on a main method. Furthermore, we show that methods based on company fundamentals and those based on market multiples lead to similar levels of accuracy. Among different classes of methods, there are no superior methods. Therefore, we argue that in order to improve forecast accuracy, analysts need to assess company value by choosing and applying a set of different methods, combining them and getting the average value, but regardless of the specific technique chosen.

Target Price Accuracy: International Evidence

ABSTRACTUsing an international sample of 16 countries, this paper examines if analyst- and country-specific characteristics explain the variation in target price (TP) accuracy. We find that significant variation in average TP accuracy across countries is due to differences in accounting disclosure quality, the origin of the legal system, cultural traits, and IFRS regulation. We also find that analysts exhibit differential and persistent ability to forecast target prices accurately, which confirms that some analysts have superior TP forecasting ability.Data Availability: Data are available from public sources indicated in the text.

Private Information, Subjective Valuation and Target Price Accuracy

How do analysts develop their forecasts? In this paper, we analyze how sell-side analysts estimate target prices and show that they consistently employ subjective adjustments to baseline models. 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.

Does a Bull-Bear Valuation Analysis Increase the Accuracy of Analysts’ Target Prices?

Equity analysts’ target price estimates are uncertain. Some analysts attempt to enhance the credibility of their valuations and limit uncertainty by supplementing their target prices with a risk assessment in the form of a bull–bear analysis (BBA). We explore whether conducting a BBA increases target price accuracy and reduces analyst forecast error. Using propensity score matching to control for selection bias, combined with a difference-in-differences estimation to allow for company- and analyst-specific effects, we estimate the effect of supplementing target prices with a BBA on the target price accuracy of US stocks during 2008-2009. The results suggest that target prices are more accurate when analysts supplement them with a BBA. Our findings contribute to the literature exploring the determinants of analyst ability to produce accurate target prices.

Target Price Accuracy

AbstractThis study analyzes the accuracy of forecasted target prices within analysts’ reports. We compute a measure for target price forecast accuracy that evaluates the ability of analysts to exactly forecast the exante (unknown) 12-month stock price. Furthermore, we determine factors that explain this accuracy. Target price accuracy is negatively related to analyst-specific optimism and stock-specific risk (measured by volatility and price-to-book ratio). However, target price accuracy is positively related to the level of detail of each report, company size and the reputation of the investment bank. The potential conflicts of interests between an analyst and a covered company do not bias forecast accuracy.

Target Price Accuracy: International Evidence

Using an international sample of 16 countries, this paper examines if analyst- and country-specific characteristics explain the variation in target price (TP) accuracy. We find significant variation in average TP accuracy across countries that is due to differences in accounting disclosure quality, the origin of the legal system, cultural traits and IFRS regulation. We also find that analysts exhibit differential and persistent ability to forecast target prices accurately, which confirms that some analysts have superior TP forecasting ability.

Target Price Accuracy in Equity Research

Abstract: Analysts’ target prices have received limited attention in academic research. In this paper we try to fill the gap by developing an innovative multi‐layer accuracy metric that we test on a novel database. Our analysis shows that forecasting accuracy is very limited: prediction errors are consistent, auto‐correlated, non‐mean reverting and large (up to 36.6%). The size of forecasting errors increases with the predicted growth in the stock price, the size of the company and for loss making firms. Additionally, the intensity of research and the market momentum negatively affect accuracy. These results suggest that analysts' research is systematically biased which supports theoretical predictions by Ottaviani and Sorensen (2006). Since stock price forecasting is largely an unmonitored activity, market participants may fail in fully understanding this behavior, thus not arbitraging away these inefficiencies.

Target Price Accuracy in Equity Research

Analysts' target prices have received limited attention in academic research. In this paper we try to fill the gap by developing an innovative multi-layer accuracy metric that we test on a novel database. Our analysis shows that forecasting accuracy is very limited: prediction errors are consistent, autocorrelated, non-mean reverting and large (up to 46%). Controlling for market and company factors, we find evidence that factors like inclusion in the market index, market momentum, size and market value are all negatively correlated with accuracy These unexpected results suggest that analysts research is systematically biased which supports theoretical predictions by Ottaviani and Sorensen (2006). Since forecasting is largely an unmonitored activity, market participants may fail in fully understanding this behavior thus not arbitraging away these inefficiencies.

Does Valuation Model Choice Affect Target Price Accuracy?

We investigate whether the choice of valuation model affects the forecast accuracy of the target prices that investment analysts issue in their equity research reports, controlling for factors that influence this choice. We examine 490 equity research reports from international investment houses for 94 UK-listed firms published over the period July 2002–June 2004. We use four measures of accuracy: (i) whether the target price is met during the 12-month forecast horizon (met_in); (ii) whether the target price is met on the last day of the 12-month forecast horizon (met_end); (iii) the absolute forecast error (abs_err); and (iv) the forecast error of target prices that are not met at the end of the 12-month forecast horizon (miss_err). Based on met_in and abs_err, price-to-earnings (PE) outperform discounted cash flow (DCF) models, while based on met_end and miss_err the difference in valuation model performance is insignificant. However, after controlling for variables that capture the difficulty of the valuation task, the performance of DCF models improves in all specifications and, based on miss_err, they outperform PE models. These findings are robust to standard controls for selection bias.