2016
DOI: 10.1111/fire.12102
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When Analysts Talk, Do Institutional Investors Listen? Evidence from Target Price Changes

Abstract: We find that institutions trade in the same direction as target price changes based on 6,415 U.S. firms from 1999 to 2011, even after controlling changes in stock recommendations and earnings forecasts. The impact of target price changes on institutional trading is more pronounced for small firms, firms followed by few analysts, and illiquid firms, and is mainly limited to transient institutions. We do not find any outperformance for institutions to follow analysts’ target price forecasts, suggesting that inst… Show more

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Cited by 8 publications
(13 citation statements)
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“…In previous sections, we focus on target price optimism and examine analyst-country investor protection and legal enforcement as a potential channel to mitigate such optimism. Despite the optimism in target prices, several studies find that target prices predict stock returns in the U.S. market and are useful to investors (e.g., Asquith, Mikhail, and Au [2005], Da and Schaumburg [2011], Lin, Tan, and Zhang [2016]). Research on the return predictive power of target prices in large cross-sections of international markets, however, is limited.…”
Section: Market Reaction Analysismentioning
confidence: 99%
“…In previous sections, we focus on target price optimism and examine analyst-country investor protection and legal enforcement as a potential channel to mitigate such optimism. Despite the optimism in target prices, several studies find that target prices predict stock returns in the U.S. market and are useful to investors (e.g., Asquith, Mikhail, and Au [2005], Da and Schaumburg [2011], Lin, Tan, and Zhang [2016]). Research on the return predictive power of target prices in large cross-sections of international markets, however, is limited.…”
Section: Market Reaction Analysismentioning
confidence: 99%
“…Overall, institutional investors respond to target price revisions. Yet, this trading behaviour is not associated with any future returns (Lin et al, 2016). This might be explained by the proposition that fund managers who trade based on public information, such as analysts' recommendations' underperform their peers who trade based on private information (Kacperczyk and Seru, 2007).…”
Section: Literature Review and Hypotheses Developmentmentioning
confidence: 95%
“…As a group, institutional investors rely on analysts' earnings' forecasts (Walther, 1997), trade based on information contained in target prices (Lin et al, 2016) and generate excess returns when trading on analysts' stock recommendations (Chen and Cheng, 2006;Green, 2006;Irvine et al, 2007). However, when considering their size, large sophisticated institutional investors appear to be more aware of the inherent bias and conflicts in analysts' recommendations, compared to small investors who naively follow the analysts' advice (Malmendier and Shanthikumar, 2007;Mikhail et al, 2007;Malmendier and Shanthikumar, 2014).…”
Section: Literature Review and Hypotheses Developmentmentioning
confidence: 99%
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