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An Empirical Analysis of Analysts' Target Prices: Short‐term Informativeness and Long‐term Dynamics
Author(s) -
Brav Alon,
Lehavy Reuven
Publication year - 2003
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00593
Subject(s) - term (time) , economics , cointegration , earnings , stock price , econometrics , stock (firearms) , financial economics , market efficiency , stock market , market price , monetary economics , finance , series (stratigraphy) , mechanical engineering , paleontology , physics , horse , quantum mechanics , engineering , biology
Using a large database of analysts' target prices issued over the period 1997–1999, we examine short‐term market reactions to target price revisions and long‐term comovement of target and stock prices. We find a significant market reaction to the information contained in analysts' target prices, both unconditionally and conditional on contemporaneously issued stock recommendation and earnings forecast revisions. Using a cointegration approach, we analyze the long‐term behavior of market and target prices. We find that, on average, the one‐year‐ahead target price is 28 percent higher than the current market price.