The effect of price magnitude on analysts' forecasts: evidence from the lab

Tristan Roger (), Wael Bousselmi, Patrick Roger and Marc Willinger
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Wael Bousselmi: CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz]

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Abstract: Recent research in finance shows that the magnitude of stock prices influences analysts' price forecasts (Roger et al., 2018). In this paper, we report the results o fa novel experiment where some of the participants in a continuous double auction market act as analysts and forecast future prices. Participants engage in two successive markets: one in which the fundamental value is a small price and one in which the fundamental value is a large price. Our results indicate that analysts' forecasts are more optimistic in small price markets compared to large price markets. We also find that analysts strongly anchor on past price trends when building their price forecasts. Overall, our findings support the existence of a small price bias.

Date: 2018-12-14
New Economics Papers: this item is included in nep-exp
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Related works:
Working Paper: The effect of price magnitude on analysts' forecasts: evidence from the lab (2021)
Working Paper: The effect of price magnitude on analysts' forecasts: evidence from the lab (2018)
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