Target Price Accuracy in Equity Research

Bonini, Stefano; Zanetti, Laura; Bianchini, Roberto; Salvi, Antonio

doi:10.1111/j.1468-5957.2010.02209.x

Cited by 93 publications

(49 citation statements)

References 38 publications

(86 reference statements)

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“…Two seminal papers (Brav andLehavy 2003, Asquith, Mikhail, andAu 2005) have shown that target prices contain relevant information for capital markets, even conditionally on other information that is issued in the form of, for example, earnings price forecasts. With respect to the question of target price accuracy, evidence is still evolving with a number of (working) papers (e.g., Bonini, Zanetti, Bianchini, and Salvi 2010, Bradshaw and Brown 2006, Gleason, Johnson, and Li 2008. We contribute to the literature by analyzing target price accuracy in the German capital market.…”

Section: Discussion and Concluding Remarksmentioning

confidence: 99%

“…Cooper, Day, and Lewis (2001) and Bernhardt, Campello, and Kutsoati (2004) showed that published compensation schedules by banks include earnings forecast accuracy but not target price accuracy as a factor for setting analysts' salaries. Bonini, Zanetti, Bianchini, and Salvi (2010) additionally argued that target prices might be subject to biases since there is no explicit control of the forecast quality. Hence, analysts might use target prices strategically, e.g., in order to increase the sales hype of a stock (e.g., Asquith, Mikhail, and Au 2005).…”

Section: Methodsmentioning

confidence: 99%

“…With respect to analyzing target price achievement, both Asquith, Mikhail, and Au (2005) and Bradshaw and Brown (2006) computed binary variables for meeting (not meeting) the target prices within and/or at the end of the 12-month period. The study of Bonini, Zanetti, Bianchini, and Salvi (2010) extends such metrics via computing the amount of under-/overachievement of target prices. Within their investor-oriented perspective, any overachievement of a target price counts as highly accurate, even in cases when the 12-month stock price strongly deviates from the forecasted target.…”

Section: Methodsmentioning

confidence: 99%

“…The authors explained this finding by considering the effect of valuation model use on target price accuracy. Bonini, Zanetti, Bianchini, and Salvi (2010) developed inaccuracy measures and compared them to the actual returns realized by each stock. They found that forecasting accuracy is very limited with prediction errors up to 46%.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Target Price Accuracy

Kerl

2011

Bus Res

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This study analyzes the accuracy of forecasted target prices within analysts’ reports. We compute a measure for target price forecast accuracy that evaluates the ability of analysts to exactly forecast the exante (unknown) 12-month stock price. Furthermore, we determine factors that explain this accuracy. Target price accuracy is negatively related to analyst-specific optimism and stock-specific risk (measured by volatility and price-to-book ratio). However, target price accuracy is positively related to the level of detail of each report, company size and the reputation of the investment bank. The potential conflicts of interests between an analyst and a covered company do not bias forecast accuracy.

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Section: Discussion and Concluding Remarksmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Target Price Accuracy

Kerl

2011

Bus Res

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“…Target prices are not a measure of a company's fair value but are actually measures of the fair value subjectively adjusted by each analyst for exogenous factors such as market momentum, liquidity or industry factors. As such, we believe that target prices are the optimal instrument to test the information revelation by equity analysts In particular we measure the information content of target prices by computing their accuracy given by the degree of proximity of the share price to the target following the methodology developed in Bonini et al (2010) This approach identi…es two metrics 2 and 4 capturing respectively: the proximity of the share price to the target at any point in time over the prediction window of the target and the proximity of the share price to the target at the end of the forecast windows. Formally we compute:…”

Section: Equity Analyst Accuracy and The Reputation Sentiment Indexmentioning

confidence: 99%

Financial Analysts and Collective Reputation: Theory and Evidence

2011

Self Cite

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This paper studies the impact of collective reputation on the reporting strategy of experts that face con ‡icts of interest. The framework we propose applies to di¤erent settings involving decision makers that rely on experts for making informed decisions, in particular we consider sell-side …nancial analysts. We …nd that collective reputation has a non-monotonic e¤ect on the degree of information revelation. In general, truthful revelation is more likely to occur when there is more uncertainty on the average ability of analysts as a group. In particular, above a certain threshold, an increase in collective reputation always makes truthful revelation more di¢ cult to achieve. We test this theory by creating an index on the market's perception of the general reliability of analysts'recommendations. The empirical analysis provides evidence that collective reputation plays a role in determining the behaviour of analysts independently of their individual reputation.

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Does corporate governance affect financial analysts’ stock recommendations, target prices accuracy and earnings forecast characteristics? An empirical investigation of US companies

Bouteska

Mili

2022

Empir Econ

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This paper investigates how corporate governance quality affects the analyst’s stock recommendations, forecast efficiency and target price accuracy on New York Stock Exchange. In particular, as corporate governance is often uncertain and ambiguous to investors, expert financial advisors may use transparent corporate governance information to set their recommendations and improve the level of accuracy of their earnings forecasts. According to agency and signaling theories, good governance mechanisms aim to mitigate agency conflicts and boost corporate transparency. Thus, we argue that they can serve as mediators during the forecasting process and we expect a strong significant relationship between the effectiveness of corporate governance mechanisms and analyst activity. Five hypotheses are tested with a large sample of 154 US market firms over a 17-year period (2004–2020). Our empirical findings point out some special features of US stock markets. We find evidence that analysts tend to issue favorable recommendations, more accurate, less dispersed and more optimistic earnings forecasts for most well-governed firms. Furthermore, we show that higher-quality governance transparency is an important determinant of financial analysts’ behavior in the USA. The results also indicate that higher-quality governance appears valuable with financial analysts during pre- and post-crisis period, while it is not generally detected in COVID-19 times. However, we report the weakness of analysts’ outputs–governance quality for small firms. Thus, our findings cast doubts over the corporate governance-based analyst practices of US small and unaffiliated firms. The main implication of these findings is to improve understanding of how investors’ behavioral characteristics affect the transmission mechanism of information in money market and capital market prices. This paper has important implications for the decision making of financial analysts and investors by requesting firms to significantly improve their information environments in the good and bad times. It also offers insights into how firms establishing good corporate governance mechanisms can help the analysts to predict future stock prices.

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Target Price Accuracy in Equity Research

Abstract: target prices , analyst recommendation , security analysis ,

Cited by 93 publications

References 38 publications

Target Price Accuracy

Target Price Accuracy

Financial Analysts and Collective Reputation: Theory and Evidence

Does corporate governance affect financial analysts’ stock recommendations, target prices accuracy and earnings forecast characteristics? An empirical investigation of US companies

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