Target Price Forecasts: The Roles of the 52‐Week High Price and Recent Investor Sentiment

35 Pages Posted: 23 Nov 2020

See all articles by Peter Clarkson

Peter Clarkson

University of Queensland - Business School; Simon Fraser University (SFU) - Beedie School of Business; Financial Research Network (FIRN)

Alexander Nekrasov

University of Illinois Chicago

Andreas Simon

Pepperdine University - Graziadio Business School

Irene Tutticci

University of Queensland - Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October-November 2020

Abstract

This paper reveals that in addition to fundamental factors, the 52‐week high price and recent investor sentiment play an important role in analysts’ target price formation. Analysts’ forecasts of short‐term earnings and long‐term earnings growth are shown to be important explanatory variables for target prices; equally, the 52‐week high price and recent investor sentiment are also shown to explain target price levels and especially target price biases. Our analysis additionally reveals that analysts place greater weight on these two non‐fundamental factors in settings with greater task complexity and to some extent in those with greater resource constraints. Conversely, on balance, the results suggest that this increased reliance does not translate into an increased impact per unit of each non‐fundamental factor on forecast bias. Finally, our results show that target prices are useful in predicting future stock returns beyond earnings forecasts and commonly used risk proxies. However, in an internally consistent fashion, the informativeness of target prices for future returns is significantly reduced when greater weight is placed on either the 52‐week high or recent investor sentiment in the target price formation process.

Keywords: 52‐week high, investor sentiment, target price forecast, target price forecast error

Suggested Citation

Clarkson, Peter and Nekrasov, Alexander and Simon, Andreas and Tutticci, Irene, Target Price Forecasts: The Roles of the 52‐Week High Price and Recent Investor Sentiment (October-November 2020). Journal of Business Finance & Accounting, Vol. 47, Issue 9-10, pp. 1365-1399, 2020, Available at SSRN: https://ssrn.com/abstract=3734980 or http://dx.doi.org/10.1111/jbfa.12497

Peter Clarkson (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Alexander Nekrasov

University of Illinois Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

HOME PAGE: http://business.uic.edu/profiles/alexander-nekrasov/

Andreas Simon

Pepperdine University - Graziadio Business School ( email )

Malibu, CA
United States

HOME PAGE: http://https://bschool.pepperdine.edu/academics/faculty/andreas-simon/

Irene Tutticci

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia
+617-3365-6587 (Phone)
+617-3365-6788 (Fax)

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