Publications
Publications
- Forthcoming
- Review of Accounting Studies
The Asymmetric Mispricing Information in Analysts’ Target Prices
By: Jeremiah Green, John R. M. Hand and Anywhere Sikochi
Abstract
We study the mispricing information present in the target prices of U.S. and international analysts. We hypothesize that asymmetry in the value-relevance of the information that managers supply to analysts, combined with asymmetry in the incentives facing analysts to curry favor with managers, leads to analyst-claimed undervaluation being more predictive of future stock returns than analyst-claimed overvaluation. Our empirical tests isolate analyst-claimed mispricing by first removing analysts’ estimates of the cost of equity from the returns implied by target prices, then separating analyst-claimed undervaluation from overvaluation. We find that target prices only predict future returns (at 16¢ to 18¢ on the dollar) when analysts claim undervaluation, not when they claim overvaluation. We also observe that analyst-claimed undervaluation predicts future returns more strongly after firms experience low returns and when macro-driven valuation uncertainty is low.
Keywords
Citation
Green, Jeremiah, John R. M. Hand, and Anywhere Sikochi. "The Asymmetric Mispricing Information in Analysts’ Target Prices." Review of Accounting Studies (forthcoming).