Analysts and anomalies

Joseph Engelberg, R. David McLean and Jeffrey Pontiff

Journal of Accounting and Economics, 2020, vol. 69, issue 1

Abstract: Analysts' price targets and recommendations contradict stock return anomaly variables. Using an index based on 125 anomalies, we find that analysts' annual stock return forecasts are 11% higher for anomaly-shorts than for anomaly-longs. Anomaly-shorts’ return forecasts are excessively optimistic, exceeding realized returns by 34%. Recommendations also tend to be more favorable for anomaly-shorts, although this result varies across anomaly types. Consistent with analysts' slowly incorporating anomaly information, anomalies forecast revisions in both price targets and recommendations. Our findings imply that investors who follow analysts' actionable information contribute to mispricing.

Keywords: Analysts; Cross-sectional return predictability; Market efficiency (search for similar items in EconPapers)
JEL-codes: C1 G00 G14 L3 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:69:y:2020:i:1:s0165410119300448

DOI: 10.1016/j.jacceco.2019.101249

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