Target Price Accuracy in Equity Research

Journal of Business, Finance and Accounting, Forthcoming

53 Pages Posted: 4 Mar 2005 Last revised: 15 Nov 2015

See all articles by Stefano Bonini

Stefano Bonini

Stevens Institute of Technology - School of Business

Laura Zanetti

Bocconi University - Department of Finance

Roberto Bianchini

Bocconi University

Antonio Salvi

Jean Monnet University

Multiple version iconThere are 2 versions of this paper

Date Written: March 15, 2010

Abstract

Analysts' target prices have received limited attention in academic research. In this paper we try to fill the gap by developing an innovative multi-layer accuracy metric that we test on a novel database. Our analysis shows that forecasting accuracy is very limited: prediction errors are consistent, autocorrelated, non-mean reverting and large (up to 46%). Controlling for market and company factors, we find evidence that factors like inclusion in the market index, market momentum, size and market value are all negatively correlated with accuracy These unexpected results suggest that analysts research is systematically biased which supports theoretical predictions by Ottaviani and Sorensen (2006). Since forecasting is largely an unmonitored activity, market participants may fail in fully understanding this behavior thus not arbitraging away these inefficiencies.

Keywords: Target Prices, Analyst recommendation, security analysis

JEL Classification: G11, G12, G14

Suggested Citation

Bonini, Stefano and Zanetti, Laura and Bianchini, Roberto and Salvi, Antonio, Target Price Accuracy in Equity Research (March 15, 2010). Journal of Business, Finance and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=676327 or http://dx.doi.org/10.2139/ssrn.676327

Stefano Bonini (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Laura Zanetti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Roberto Bianchini

Bocconi University ( email )

Via Sarfatti 25
20136 Milan, MI 20136
Italy

Antonio Salvi

Jean Monnet University ( email )

34, rue Francis Baulier
Saint-Etienne, 42023
France

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