TY - JOUR
T1 - Target Price Accuracy in Equity Research
AU - Bonini, Stefano
AU - Zanetti, Laura
AU - Bianchini, Roberto
AU - Salvi, Antonio
PY - 2010/11
Y1 - 2010/11
N2 - 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, auto-correlated, non-mean reverting and large (up to 36.6%). The size of forecasting errors increases with the predicted growth in the stock price, the size of the company and for loss making firms. Additionally, the intensity of research and the market momentum negatively affect accuracy. These results suggest that analysts' research is systematically biased which supports theoretical predictions by Ottaviani and Sorensen (2006). Since stock price forecasting is largely an unmonitored activity, market participants may fail in fully understanding this behavior, thus not arbitraging away these inefficiencies.
AB - 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, auto-correlated, non-mean reverting and large (up to 36.6%). The size of forecasting errors increases with the predicted growth in the stock price, the size of the company and for loss making firms. Additionally, the intensity of research and the market momentum negatively affect accuracy. These results suggest that analysts' research is systematically biased which supports theoretical predictions by Ottaviani and Sorensen (2006). Since stock price forecasting is largely an unmonitored activity, market participants may fail in fully understanding this behavior, thus not arbitraging away these inefficiencies.
KW - Analyst recommendation
KW - Security analysis
KW - Target prices
UR - http://www.scopus.com/inward/record.url?scp=78049438711&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=78049438711&partnerID=8YFLogxK
U2 - 10.1111/j.1468-5957.2010.02209.x
DO - 10.1111/j.1468-5957.2010.02209.x
M3 - Article
AN - SCOPUS:78049438711
SN - 0306-686X
VL - 37
SP - 1177
EP - 1217
JO - Journal of Business Finance and Accounting
JF - Journal of Business Finance and Accounting
IS - 9-10
ER -