The market versus the analyst: Biases and predictive ability

Richard B. Carter and Troy J. Strader

The Quarterly Review of Economics and Finance, 2009, vol. 49, issue 2, 398-416

Abstract: Using the end of the quiet period (QPX) after an IPO as a venue for testing, we examine the long-run predictive ability of analysts and the market. Not only do we find that the analysts are reasonably good at predicting returns for at least a year, we also find that the market in general is at least as good--even after adjusting for the analysts' recommendations. Separating the QPX market reaction into retail-dominated versus institutional-dominated - based on trade size - we find consistent evidence that only institutional-dominated reactions are positively related to longer-run return. When we examine 5-year survival prediction, we again find that only the institutional-dominated QPX reaction is positively related to survivability. There was no evidence that analysts were able to predict 5 years survival.

Keywords: Security; analysts; Initial; public; offerings; Quiet; period; Long-run; return (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:49:y:2009:i:2:p:398-416

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