Target Price Accuracy

Abstract

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.

Do financial analysts' long-term growth forecasts matter? Evidence from stock recommendations and career outcomes

“…Like LTG forecasts, target price forecasts are overly optimistic (Bradshaw, 2002;Brav and Lehavy, 2003;Bradshaw and Brown, 2007) and grossly inaccurate (Bradshaw and Brown, 2007;Bonini et al, 2010;Kerl, 2011). Unlike research related to LTG forecasts, we do not find a rich literature identifying analysts' opportunistic incentives to issue target price forecasts for reasons divorced from an attempt to gain value-relevant perspective on the firm's prospects.…”

“…In particular, we consider analysts' forecasts of annual earnings for years t þ1 through t þ5, and analysts' target price forecasts, generally believed to have a one-year horizon (Bradshaw and Brown, 2007;Kerl, 2011).…”

Os analistas sell-side fazem boas previsões no Brasil?

“…Alguns trabalhos olharam para consenso de preço no mercado americano (e.g. BRADSHAW, 2002;BRAV;ASQUITH;MIKHAIL;AU, 2005;BONINI et ai, 2010;KERL, 2011;BRADSHAW; e conseguiram apontar particularidades que diferiram de estudos com previsões de lucro por ação.…”

Should Analysts Go by the Book? Valuation Models and Target Price Accuracy in an Emerging Market

“…According to Kerl (2011), the non-availability of databases with target price information until the late 1990s is the major reason for literature not focusing on target prices. Similarly, Bradshaw (2011) recently performed a global search on ABI/INFORM database and he finds 867 articles focusing on analyst and earnings while he finds only 17 articles related to analyst and target prices.…”