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Download e-book for iPad: An Empirical Analysis of Analysts’ Target Prices: Short-term by Brav A., Lehavy R.

By Brav A., Lehavy R.

Utilizing a wide database of analysts' objective costs issued over the interval 1997-1999, we study non permanent marketplace 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' goal costs, either unconditionally and conditional on contemporaneously issued inventory advice and gains forecast revisions. utilizing a cointegration strategy, we learn the long term habit of marketplace and aim prices.We ¢nd that, on ordinary, the one-year-ahead aim rate is 28 percentage greater than the present industry expense.

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The indicator variables assume the value 1 for the relevant recommendation revision and 0 otherwise. The recommendation categories are upgrades, downgrades, and reiterations. Abnormal returns are computed as the di¡erence between the ¢rm buy-and-hold return and the buy-and-hold return on the NYSE/AMEX/Nasdaq value-weighted index over the period beginning two days prior to and ending two days subsequent to the target price announcement. Earnings forecast revision, denoted DF/P, is computed as the percentage change in the brokerage house current and prior annual earnings forecast scaled by preannouncement stock price.

Summary and Conclusions Using a large database of analyst price targets, stock recommendations, and earnings forecasts, we examine short-term market reactions to target price announcements and long-term comovement of target and market prices. Consistent with our predictions, we ¢nd that target prices are informative both unconditionally and conditional on contemporaneously issued recommendation and earnings forecast revisions. Moreover, revisions in target prices contain information about six-month postevent abnormal returns.

The recommendation categories are upgrades, downgrades, and reiterations. Abnormal returns are computed as the di¡erence between the ¢rm buy-and-hold return and the buy-and-hold return on the NYSE/AMEX/Nasdaq value-weighted index over the period beginning two days prior to and ending two days subsequent to the target price announcement. Earnings forecast revision, denoted DF/P, is computed as the percentage change in the brokerage house current and prior annual earnings forecast scaled by preannouncement stock price.

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An Empirical Analysis of Analysts’ Target Prices: Short-term Informativeness and Long-term Dynamics by Brav A., Lehavy R.


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