Analysts and Anomalies
46 Pages Posted: 23 Mar 2017 Last revised: 4 Apr 2019
Date Written: April 3, 2019
Analysts’ price targets and recommendations contradict stock return anomaly variables. Using an index based on 125 anomalies, we find that analysts’ annual stock return forecasts are 14% higher for anomaly-shorts than for anomaly-longs. Anomaly-shorts’ return forecasts are excessively optimistic, exceeding realized returns by 36%. Recommendations also tend to be more favorable for anomaly-shorts, although this result varies across anomaly types. Consistent with analysts’ slowly incorporating anomaly information, anomalies forecast revisions in both price targets and recommendations. Our findings imply that investors who follow analyst-actionable information contribute to mispricing.
Keywords: Anomalies, Analysts, Market Efficiency
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