46 Pages Posted: 23 Mar 2017 Last revised: 19 Jun 2017
Date Written: March 15, 2017
Analysts’ price targets and recommendations contradict stock return anomaly variables. Forecasted returns based on price targets are higher (lower) among stocks that anomaly variables suggest will have lower (higher) returns. Analysts’ one-year forecasted returns are 14% for anomaly-longs and 24% for anomaly-shorts. Similarly, analysts issue more favorable recommendations for anomaly-shorts than anomaly-longs. Analysts’ ex-post mistakes, which we calculate as the forecasted return less the realized return, can be predicted with anomaly variables. Our findings show that investors who follow analysts may contribute to mispricing.
Keywords: Anomalies, Analysts, Market Efficiency
Suggested Citation: Suggested Citation
Engelberg, Joseph and McLean, R. David and Pontiff, Jeffrey, Analysts and Anomalies (March 15, 2017). Georgetown McDonough School of Business Research Paper No. 2939174. Available at SSRN: https://ssrn.com/abstract=2939174 or http://dx.doi.org/10.2139/ssrn.2939174