Target Price Accuracy in Equity Research

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

doi:10.2139/ssrn.676327

Cited by 46 publications

(52 citation statements)

References 34 publications

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“…In the US market, Asquith et al (2005) report that 6 For a comprehensive overview of EPS forecast accuracy studies, see Schipper (1991) and Brown (1993) The international evidence with respect to target prices is equally limited. In an Italian study, Bonini et al (2010) report that target price inaccuracy is larger for TPs predicting strong price increases, for larger firms, for loss-making ones, and for stocks with better analyst coverage and stronger momentum. Demirakos et al (2010) find that after controlling for the difficulty of the valuation task, TPs derived from discounted cash flow valuation models are relatively more accurate than TPs produced from price-to-earnings multiples for one out of four TP accuracy measures, using a sample of 94 UK firms during the period 2002-2004.…”

Section: Literature Reviewmentioning

confidence: 99%

“…His literature search identifies only 14 papers on analyst target prices listed in ABI/INFORM, and only three that look at target prices and earnings forecasts together. In particular, of the three published studies that provide some evidence on TP accuracy, Asquith et al (2005) report only summary statistics on TP accuracy, and Demirakos et al (2010) and Bonini et al (2010) do not examine whether analyst and broker characteristics determine TP accuracy. Bradshaw and Brown (2007), the only other study to examine persistence in analyst target price forecasting accuracy, find no link between past and current TP forecast accuracy in the US market over 1997-2002.…”

Section: Introductionmentioning

confidence: 99%

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Target Price Accuracy: International Evidence

Bilinski

Lyssimachou

Walker

2012

The Accounting Review

112

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This paper shows that analysts exhibit differential and persistent ability to issue accurate target prices (TPs), and that institutional and regulatory differences across countries affect TP accuracy. Using a sample of 16 countries, we find that better past TP forecasters, analysts with higher forecasting experience, following more firms, country-specialized, and employed by a large broker issue more accurate TPs. Further, the country's institutional and regulatory factors, such as the accounting disclosure quality, the origin of the legal system, cultural traits, and IFRS regulation explain cross-country differences in TP forecast accuracy.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Target Price Accuracy: International Evidence

Bilinski

Lyssimachou

Walker

2012

The Accounting Review

112

View full text Add to dashboard Cite

show abstract

“…As described earlier, steps related to the past (2, 3, 4) extract information for the historical part, while steps related to the future (6,7,8) construct projections for the future part of a CPM. In between these steps, the aim of step 5 is to build various computational financial routines (e.g.…”

Section: Construction Of a Modelmentioning

confidence: 99%

“…Numerous research papers on sell-side analysis have investigated its accuracy (e.g. [7], [22] and [5]) and impact on financial markets (e.g. [9], [29] and [30]).…”

Section: Introductionmentioning

confidence: 99%

The art of company financial modelling

Lukić¹

2017

Croat. Oper. Res. Rev.

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Abstract. In corporate finance, the term financial modelling denotes a widely used technique of comprehensive customised quantification of a company's entire operations. Even though not mathematically strict, such models exhibit descriptive, explanatory and predictive qualities. The paper elaborates on the main steps and principles for building financial models of companies. It also identifies required assumptions and certain statistical properties of well-constructed models. Furthermore, it describes the use of such models for decision support purposes, supplemented by an illustrative example. Finally, it discusses general characteristics and concerns associated with appropriate model construction and use.

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“…They found forecasting accuracy (predicted vs. actual) as very limited with error rates of around 37%. [7] For specifically U.S. stocks and TSP accuracy, we turned to a 2013 study by Bradshaw, Brown, and Hung "Do Sell-Side Analysts Exhibit Differential Target Price Forecasting Ability?" The study tested whether the Actual Stock Price (ASP) met or exceeded the Target Stock Price (TSP) at least sometime within the twelve-month forecast horizon.…”

Section: Review Of Recent Researchmentioning

confidence: 99%

Research Reports on Initial Public Offerings (IPOs): Analysis of Target Stock Price Accuracy

Sherbo¹,

Finn²

2017

JAEF

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Abstract. Research Reports on Initial Public Offerings (IPOs) offer analysts with unique challenges. There is little, if any, financial background on the corporation and these Reports can be very influential as the company goes public for the first time. We examined 692 Research Reports issued on nearly 200 IPO's during 2013 and found their Target Stock Price (TSP) accuracy to be very respectable when compared to Reports issued on mature companies. We looked at IPO Reports issued by at least one analyst with a Chartered Financial Analyst (CFA ® ) designation. These results showed a slightly higher, accuracy rate than reports issued by non-CFA analyst(s). Finally, we ranked twelve securities firms on their TSP accuracy rates. Keywords:Initial public offerings; research reports IntroductionResearch Reports are an important product produced by many firms in the securities business. They are written on corporations as old as General Electric founded in 1892, and on new companies going public for the first time in an Initial Public Offering (IPO) such as Snap, Inc., in 2017 (NYSE: SNAP). This article focuses on the latter as we wanted to look at the Target Stock Price (TSP) accuracy of what we view as probably the toughest Research Report to write, a corporation with basically no previous track record on the valuation or the performance of its stock price. The TSP is important because it leads to a Buy, Sell, or Hold recommendation when compared to the current stock price. This article begins with a review of the literature on the topic of TSP or Analyst Accuracy. It is important to immediately note that we found no such prior research exists on testing such accuracy with Research Reports on IPOs. The article then turns to the methodology and database, reports results, and presents our conclusions on what we believe to be the first research of its kind on Research Reports and IPOs. Review of Recent ResearchWe thought regular analysis on the accuracy of Research Reports would be quite plentiful. We were mistaken. After all, such Reports are making very specific recommendations (e.g., Buy, Sell, Hold) and normally provide a specific TSP. The TSP tells the investor how much of an annual gain can be expected in the stock price. If the current stock price is $40 per share and the TSP is $50 within twelve months (the normal timeframe in Research Reports), then the annual expected gain would be 25%. This percentage would be compared against alternative investments at the same and different levels of risk. Moreover, investors often compare the expected TSP gain against the expected gain using an index (passive) strategy such as investing in the S&P 500 over the same period. Research Reports are a form of active investing advice because if the predicted returns are less than what the investor expects from the S&P 500, then the investor would likely purchase an index fund to gain the higher return, plus achieve immediate diversification of risk. Some research mainly focused on accuracy of earnings estimates which is not the sa...

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Target Price Accuracy in Equity Research

Cited by 46 publications

References 34 publications

Target Price Accuracy: International Evidence

Target Price Accuracy: International Evidence

The art of company financial modelling

Research Reports on Initial Public Offerings (IPOs): Analysis of Target Stock Price Accuracy

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