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

Posted: 16 Jun 2012

See all articles by Noor Hashim

Noor Hashim

Lancaster University Management School

Asad Kausar

American University - Kogod School of Business; Nanyang Technological University (NTU); Nanyang Technological University

Norman C. Strong

University of Manchester - Alliance Manchester Business School

Date Written: June 15, 2012

Abstract

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.

Keywords: bull–bear analysis, equity analysts, information uncertainty, risk assessment, scenario analysis, target price accuracy, valuation

JEL Classification: M41, G10, G24, G29, C15, C40

Suggested Citation

Hashim, Noor and Kausar, Asad and Strong, Norman Charles, Does a Bull-Bear Valuation Analysis Increase the Accuracy of Analysts’ Target Prices? (June 15, 2012). Available at SSRN: https://ssrn.com/abstract=2084678 or http://dx.doi.org/10.2139/ssrn.2084678

Noor Hashim

Lancaster University Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

Asad Kausar

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States

Nanyang Technological University (NTU) ( email )

S3 B2-A28 Nanyang Avenue
Singapore, 639798
Singapore

Nanyang Technological University ( email )

Nanyang Business School
Singapore, 639798
Singapore

Norman Charles Strong (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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