By Brav A., Lehavy R.
Utilizing a wide database of analysts' objective costs issued over the interval 1997-1999, we research temporary industry reactions to focus on fee revisions and long term comovement of aim and inventory prices.We ¢nd a signi¢cant marketplace response to the data contained in analysts' aim costs, either unconditionally and conditional on contemporaneously issued inventory advice and gains forecast revisions. utilizing a cointegration process, we research the long term habit of marketplace and objective prices.We ¢nd that, on general, the one-year-ahead aim rate is 28 percentage larger than the present industry rate.
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Extra resources for An Empirical Analysis of Analysts’ Target Prices: Short-term Informativeness and Long-term Dynamics
Htm. , and G. Weiss, 2000, Wall Street’s hype machine: It could spell trouble for investors, BusinessWeek, April 3, 112^126. Womack, L. , Journal of Finance 51, 137^167.
We provide evidence that the market understands the latter relationship. Target prices and, more generally, ¢nancial analysts have recently received considerable attention. This paper is the ¢rst to explore and document evidence on the informativeness and time-series behavior of analysts’ target prices, thus contributing to our understanding of price formation in equity markets. First, as Asquith et al. (2002) and others document, target prices are often computed as the product of forecasted earnings and an earnings multiple.
Are any di¡erences to be found in target prices between‘‘a⁄liated’’and ‘‘una⁄liated’’analysts (Michaely and Womack (1999))? S. We leave these intriguing questions for future research. , hold-to-buy relative to hold-to-strong buy), controlling for the information in both target price and earnings forecast revisions. We expect the magnitude of a recommendation revision to be informative even in the presence of target prices. For a given target price revision, the magnitude of the associated recommendation revision can provide additional information on an analyst’s level of con¢dence in that target price.