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

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By Brav A., Lehavy R.

Utilizing a wide database of analysts' objective costs issued over the interval 1997-1999, we study temporary marketplace reactions to focus on rate revisions and long term comovement of goal and inventory prices.We ¢nd a signi¢cant industry response to the data contained in analysts' aim costs, either unconditionally and conditional on contemporaneously issued inventory advice and profits forecast revisions. utilizing a cointegration process, we examine the long term habit of industry and goal prices.We ¢nd that, on usual, the one-year-ahead aim expense is 28 percentage better than the present industry fee.

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Lyon, 1997, Detecting long-run abnormal stock returns: The empirical power and speci¢cation of test-statistics, Journal of Financial Economics 43, 341^372. , 2000, How do analysts use their forecasts? Working paper, Harvard Business School. , 2002,The use of target prices to justify sell-side analysts’stock recommendations, Accounting Horizons 16, 27^ 41. Brav, Alon, and Paul A. Gompers, 1997, Myth or reality? The long-run underperformance of initial public o¡erings: Evidence from venture capital and nonventure capital-backed companies, Journal of Finance 52, 1791^1822.

And John D. Lyon, 1997, Detecting long-run abnormal stock returns: The empirical power and speci¢cation of test-statistics, Journal of Financial Economics 43, 341^372. , 2000, How do analysts use their forecasts? Working paper, Harvard Business School. , 2002,The use of target prices to justify sell-side analysts’stock recommendations, Accounting Horizons 16, 27^ 41. Brav, Alon, and Paul A. Gompers, 1997, Myth or reality? The long-run underperformance of initial public o¡erings: Evidence from venture capital and nonventure capital-backed companies, Journal of Finance 52, 1791^1822.

We ¢rst estimate a one-week-ahead forecast of the consensus target prices using the sample information that would have been available to investors prior to the release of the analyst report. We require a minimum of 10 weekly observations to ¢t the cointegration regression. The di¡erence between the regression forecast and the preannouncement consensus target price, denoted (Expected DTP/P), serves as a proxy for the expected consensus target price revision. Unexpected target price revision, denoted (Unexpected DTP/P), is the difference between the announced and expected target price.

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