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Target Price Accuracy in Equity ResearchStefano BoniniStevens Institute of Technology - School of Business; NYU Stern; Bocconi University - Department of Finance Laura ZanettiBocconi University - Department of Finance Roberto BianchiniBocconi University Antonio SalviJean Monnet University March 15, 2010 Journal of Business, Finance and Accounting, Forthcoming 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.
Number of Pages in PDF File: 53 Keywords: Target Prices, Analyst recommendation, security analysis JEL Classification: G11, G12, G14 Date posted: March 4, 2005 ; Last revised: November 15, 2015Suggested CitationContact Information
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