Financial Markets and Portfolio Management

, Volume 26, Issue 4, pp 405–428 | Cite as

To buy or not to buy? The value of contradictory analyst signals

  • Stefan Kanne
  • Jan KlobucnikEmail author
  • Daniel Kreutzmann
  • Soenke Sievers


We study the predictive ability of individual analyst target price changes for post-event abnormal stock returns within each recommendation category. Although prior studies generally demonstrate the investment value of target prices, we find that target price changes do not cause abnormal returns within each recommendation level. Instead, contradictory analyst signals (e.g., strong buy reiterations with large target price decreases) neutralize each other, whereas confirmatory signals reinforce each other. Further, our analysis reveals that large target price downgrades can be explained by preceding stock price decreases. However, upgrades are not preceded by stock price increases, thereby demonstrating asymmetric analyst behavior when adjusting target prices to stock prices. Our results suggest that investors should treat recommendations with caution when they are issued with large contradictory target price changes. Thus, instead of blindly following a recommendation, investors might put more weight on the change in the corresponding target price and consider transaction costs.


Analyst recommendation Target price Stock performance  Trading strategy 

JEL Classification

G11 G12 G17 G24 



We thank the seminar participants at the 2009 Midwest Finance Association Meeting, the 2009 Conference of the Swiss Society for Financial Market Research, and the 2009 Cologne Colloquium on Financial Markets. Moreover, we are grateful to Markus Schmid, the editor, and an anonymous referee for very helpful comments.


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Copyright information

© Swiss Society for Financial Market Research 2012

Authors and Affiliations

  • Stefan Kanne
    • 1
  • Jan Klobucnik
    • 2
    Email author
  • Daniel Kreutzmann
    • 1
  • Soenke Sievers
    • 3
  1. 1.University of CologneAlbertus Magnus PlatzCologneGermany
  2. 2.Cologne Graduate School (CGS)University of CologneCologneGermany
  3. 3.Accounting AreaUniversity of CologneCologneGermany

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