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Analysts and Anomalies

46 Pages Posted: 23 Mar 2017 Last revised: 19 Jun 2017

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

R. David McLean

Georgetown University - Department of Finance

Jeffrey Pontiff

Boston College - Department of Finance

Date Written: March 15, 2017

Abstract

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

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

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

R. David McLean (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC Washington DC 20057
United States

Jeffrey Pontiff

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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