Analyst target price and dividend forecasts and expected stock returns

Jinji Hao () and Jonathon Skinner ()
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Jinji Hao: Victoria University of Wellington
Jonathon Skinner: New Zealand’s Exchange

Journal of Asset Management, 2023, vol. 24, issue 2, No 3, 108-120

Abstract: Abstract This paper examines whether adding expected dividend yields implied by analyst dividend forecasts to expected capital gains implied by analyst target prices improves the portfolio strategy of buying stocks with the highest expected returns and selling stocks with the lowest expected returns. We find that the strategy based on the expected total returns performs only slightly better at the 1-month horizon because the short-term return predictability of the expected dividend yield is weak. We find that the strategy generates significant abnormal returns regardless of sorting the stocks universally or within industries, although sorting stocks within industries improves the performance.

Keywords: Target price; Dividend forecast; Return predictability (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1057/s41260-022-00283-z

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