Does a Bull-Bear Valuation Analysis Increase the Accuracy of Analysts’ Target Prices?
Posted: 16 Jun 2012
Date Written: June 15, 2012
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
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