Analysts' Target Price Forecasting Ability and Market Reaction
Asian Tax Journal Vol. 12 No. 2 (2011), pp. 43-73
Abstract
Most studies related to financial analysts focus on analysts' earnings forecasts and stock recommendations. Little is known about analysts' abilities to forecast target prices. This study fills the void by examining whether analysts have differential abilities to forecast target prices and the differential abilities are persistent. Furthermore, we examine whether the market reflects analysts'differential abilities to predict target prices in stock prices. We find that the accuracy of target price forecasts in the prior period is positively related to that in the current period. This indicates that analysts do exhibit differential abilities to predict target prices and the superior abilities are persistent. Also, the results reveal that the market reactions to target price revisions are positively associated with analysts' lagged target price forecasting performance, suggesting that the market pays more attention to target price revisions of analysts who exhibited superior target price forecasting abilities in the past.
Keywords
- Analysts
- Target Price
- Forecasting Abilities
- Persistent
- Market Reactions to Target Price Revisions
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