Strong-Form Efficiency on the Toronto Stock Exchange: An Examination of Analyst Price Forecasts

25 Pages Posted: 9 Apr 2008

See all articles by Lawrence D. Brown

Lawrence D. Brown

Temple University - Department of Accounting

Gordon D. Richardson

University of Toronto - Rotman School of Management

Charles Trzcinka

Indiana University - Kelley School of Business - Department of Finance

Date Written: 1991

Abstract

Strong-form efficiency on the Toronto Stock Exchange is examined by focusing on the stock price forecasts of brokerage-firm analysts who follow TSE firms. Two principal analyses are undertaken. First, there is considerable evidence in both the U.S. and U.K. that analysts possess valuable private information at the firm-specific level. This paper provides evidence that this finding is generalizable to Canadian analysts. Second, U.S. and U.K. studies generally have been based on a single-factor model (e.g., the CAPM). The choice of benchmarks (CAPM versus APT) has been shown to be important in a variety of contexts. We provide evidence that the choice of benchmark does not alter the fundamental conclusion that Canadian analysts possess valuable private information at the firm-specific level. Our findings have implications for accounting researchers, namely, the appropriateness of researchers to use CAPM in lieu of the computationally, more burdensome APT and the appropriateness of researchers to use Canadian analyst forecasts when a proxy is required for the (unobservable) market expectation.

Suggested Citation

Brown, Lawrence D. and Richardson, Gordon D. and Trzcinka, Charles, Strong-Form Efficiency on the Toronto Stock Exchange: An Examination of Analyst Price Forecasts (1991). Contemporary Accounting Research, Vol. 7, No. 2, 1991. Available at SSRN: https://ssrn.com/abstract=1118042

Lawrence D. Brown (Contact Author)

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Gordon D. Richardson

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-8601 (Phone)
416-971-3048 (Fax)

Charles Trzcinka

Indiana University - Kelley School of Business - Department of Finance ( email )

Kelley School of Business
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-9908 (Phone)
812-855-5875 (Fax)

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