SUBJECTIVE VALUATION AND TARGET PRICE ACCURACY

Stefano Bonini, Vincenzo Capizzi () and Alexander Kerl ()
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Stefano Bonini: School of Business, Stevens Institute of Technology, 1 Castle Point Terrace, Hoboken, NJ 07030, USA
Vincenzo Capizzi: Department of Economics and Business Studies, Università degli Studi del Piemonte, Orientale “Amedeo Avogadro†, Via E. Perrone 18, 28100 Novara, Italy
Alexander Kerl: Department of Financial Services, Justus-Liebig University of Giessen, Licher Straße 74, D-35394 Gießen, Germany

Journal of Financial Management, Markets and Institutions (JFMMI), 2022, vol. 10, issue 01, 1-31

Abstract: In this paper, we analyze how subjective adjustments to baseline models by analysts affect the forecasting accuracy. For a panel of analyst reports, we show that target price forecasts that deviate significantly from simple multiple-based pseudo-target prices are (ex-post) more accurate. By controlling for various stock and broker characteristics, we also demonstrate that our results are not driven by the degree of sophistication of the valuation models. Furthermore, we show that investors know about this increased informativeness of forecasts as the abnormal market return around target price revisions is significantly higher if analysts deviate from simple pseudo-target prices when issuing their forecasts.

Keywords: Target prices; equity research; forecast accuracy; multiple valuation (search for similar items in EconPapers)
JEL-codes: G14 G19 G24 M41 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S2282717X22500050

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