Business Research

, Volume 4, Issue 1, pp 74–96 | Cite as

Target Price Accuracy

  • Alexander G. KerlEmail author
Open Access


This study analyzes the accuracy of forecasted target prices within analysts’ reports. We compute a measure for target price forecast accuracy that evaluates the ability of analysts to exactly forecast the exante (unknown) 12-month stock price. Furthermore, we determine factors that explain this accuracy. Target price accuracy is negatively related to analyst-specific optimism and stock-specific risk (measured by volatility and price-to-book ratio). However, target price accuracy is positively related to the level of detail of each report, company size and the reputation of the investment bank. The potential conflicts of interests between an analyst and a covered company do not bias forecast accuracy.


target prices forecast accuracy financial report security analysis efficient capital markets financial analysts conflicts of interest analyst report equity analysis forecast deviation information content 


  1. Abarbanell, Jeffery S. (1991): Do Analysts’ Earnings Forecasts Incorporate Information in Prior Stock Price hanges?, Journal of Accounting and Economics, 14 (2): 147–165.CrossRefGoogle Scholar
  2. Abdel-Khalik, A. Rashad and Bipin B. Ajinkya (1982): Returns to Informational Advantages: The Case of Analysts’ Forecast Revisions, The Accounting Review, 57 (4): 661–680.Google Scholar
  3. Agrawal, Anup and Mark A. Chen (2008): Do Analyst Conflicts Matter? Evidence from Stock Recommendations, Journal of Law and Economics, 51 (3): 503–537.CrossRefGoogle Scholar
  4. Ali, Ashiq, April Klein, and James Rosenfeld (1992): Analysts’ Use of Information about Permanent and Transitory Earnings Components in Forecasting Annual EPS, The Accounting Review, 67 (1): 183–198.Google Scholar
  5. Amir, Eli and Baruch Lev (1996): Value-Relevance of Nonfinancial Information: The Wireless Communication Industry, Journal of Accounting and Economics, 22 (1–3): 3–30.CrossRefGoogle Scholar
  6. Asquith, Paul, Michael B. Mikhail, and Andrea S. Au (2005): Information Content of Equity Analyst Reports, Journal of Financial Economics, 75 (2): 245–282.CrossRefGoogle Scholar
  7. Bandyopadhyay, Sati P., Lawrence D. Brown, and Gordon D. Richardson (1995): Analysts’ Use of Earnings Forecasts in Predicting Stock Returns: Forecast Horizon Effects, International Journal of Forecasting, 11 (3): 429–445.CrossRefGoogle Scholar
  8. Banz, Rolf W. (1981): The Relationship between Return and Market Value of Common Stocks, Journal of Financial Economics, 9 (1): 3–18.CrossRefGoogle Scholar
  9. Barber, Brad M. and Terrance Odean (2008): All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors, Review of Financial Studies, 21 (2): 785–818.CrossRefGoogle Scholar
  10. Barber, Brad M., Reuven Lehavy, Maureen McNichols, and Brett Trueman (2001): Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns, Journal of Finance, 56 (2): 531–563.CrossRefGoogle Scholar
  11. Barker, Richard G. (1999): The Role of Dividends in Valuation Models Used by Analysts and Fund Managers, The European Accounting Review, 8 (2): 195–218.CrossRefGoogle Scholar
  12. Beckers, Stan, Miachel Steliaros, and Alexander Thomson (2004): Bias in European Analysts’ Earnings Forecasts, Financial Analysts Journal, 60 (2): 74–85.CrossRefGoogle Scholar
  13. Bernhardt, Dan, Murillo Campello,and Edward Kutsoati (2004): Analyst Compensation and Forecast Bias, Working Paper, SSRN, Scholar
  14. Bonini, Stefano, Laura Zanetti, Roberto Bianchini, and Antonio Salvi (2010): Target Price Accuracy in Equity Research, Journal of Business Finance & Accounting, 37 (9–10): 1177–1217.CrossRefGoogle Scholar
  15. Bradley, Daniel J., Bradford D. Jordan, and Jay R. Ritter (2003): The Quiet Period Goes out with a Bang, Journal of Finance, 58 (1): 1–36.CrossRefGoogle Scholar
  16. Bradshaw, Mark T. (2002): The Use of Target Prices to Justify Sell-Side Analysts’ Stock Recommendations, Accounting Horizons, 16 (1): 27–41.CrossRefGoogle Scholar
  17. Bradshaw, Mark T. and Lawrence D. Brown (2006): Do Sell-Side Analysts Exhibit Differential Target Price Forecasting Ability?, Working Paper, SSRN, Scholar
  18. Bradshaw, Mark T., Scott A. Richardson, and Richard G. Sloan (2003): Pump and Dump: An Empirical Analysis of the Relation between Corporate Financing Activities and Sell-Side Analyst Research, Working Paper, SSRN, Scholar
  19. Brav, Alon and Reuven Lehavy (2003): An Empirical Analysis of Analysts’ Target Prices: Short-Term Informativeness and Long-Term Dynamics, Journal of Finance, 58 (5): 1933–1967.CrossRefGoogle Scholar
  20. Breton, Gaétan and Richard J. Taffler (2001): Accounting Information and Analyst Stock Recommendation Decisions: A Content Analysis Approach, Accounting and Business Research, 31 (2): 91–101.CrossRefGoogle Scholar
  21. Brown, Lawrence D. (1993): Earnings Forecasting Research: Its Implications for Capital Market Research, International Journal of Forecasting, 9 (3): 295–320.CrossRefGoogle Scholar
  22. Brown, Lawrence D. and David M. Chen (1990): How Good is the All-American Research Team in Forecasting Earnings?, Journal of Business Forecasting, 9 (4): 14–18.Google Scholar
  23. Brown, Lawrence D. (ed.) (2000): I/B/E/S Research Bibliography, ition6th ed.,∼wwwaccFaculty/lbrown/ Bibliography.pdf (Access date: 2011-02-15).Google Scholar
  24. Butler, Kirt C. and Hakan Saraoglu (1999): Improving Analysts’ Negative Earnings Forecasts, Financial Analysts Journal, 55 (3): 48–56.CrossRefGoogle Scholar
  25. Capstaff, John, Krishna Paudyal, and William Rees (1999): The Relative Forecast Accuracy of UK Brokers, Accounting and Business Research, 30 (1): 3–16.CrossRefGoogle Scholar
  26. Carhart, Mark M. (1997): On Persistence in Mutual Fund Performance, Journal of Finance, 52 (1): 57–82.CrossRefGoogle Scholar
  27. Chopra, Vijay K. (1998): Why So Much Error in Analysts’ Earnings Forecasts?, Financial Analysts Journal, 54 (6): 35–42.CrossRefGoogle Scholar
  28. Clement, Michael B. (1999): Analyst Forecast Accuracy: Do Ability, Resources, and Portfolio Complexity Matter?, Journal of Accounting and Economics, 27 (3): 285–303.CrossRefGoogle Scholar
  29. Cooper, Rick A., Theodore E. Day, and Craig M. Lewis (2001): Following the Leader: A Study of Individual Analysts’ Earnings Forecasts, Journal of Financial Economics, 61 (3): 383–416.CrossRefGoogle Scholar
  30. Cowen, Amanda, Boris Groysberg, and Paul Healy (2006): Which Types of Analyst Firms Are More Optimistic?, Journal of Accounting and Economics, 41 (1–2): 119–146.CrossRefGoogle Scholar
  31. De Bondt, Werner F. M. and William P. Forbes (1999): Herding in Analyst Earnings Forecasts: Evidence from the United Kingdom, European Financial Management, 5 (2): 143–163.CrossRefGoogle Scholar
  32. Dechow, Patricia M., Amy P. Hutton, and Richard G. Sloan (2000): The Relation between Analysts’ Forecasts of Long-Term Earnings Growth and Stock Price Performance Following Equity Offerings, Contemporary Accounting Research, 17 (1): 1–32.CrossRefGoogle Scholar
  33. Dreman, David N. and Michael A. Berry (1995): Analyst Forecasting Errors and Their Implications for Security Analysis, Financial Analysts Journal, 51 (3): 30–41.CrossRefGoogle Scholar
  34. Dugar, Amitabh and Siva Nathan (1995): The Effect of Investment Banking Relationships on Financial Analysts’ Earnings Forecasts and Investment Recommendations, Contemporary Accounting Research, 12 (1): 131–160.CrossRefGoogle Scholar
  35. Easterwood, John C. and Stacey R. Nutt (1999): Inefficiency in Analysts’ Earnings Forecasts: Systematic Misreaction or Systematic Optimism?, Journal of Finance, 54 (5): 1777–1797.CrossRefGoogle Scholar
  36. Elton, Edwin J., Martin J. Gruber, and Seth Grossman (1986): Discrete Expectational Data and Portfolio Performance, Journal of Finance, 41 (3): 699–713.CrossRefGoogle Scholar
  37. Ertimur, Yonca, Jayanthi Sunder, and Shyam V. Sunder (2007): Measure for Measure: The Relation Between Forecast Accuracy and Recommendation Profitability of Analysts, Journal of Accounting Research, 45 (3): 567–606.CrossRefGoogle Scholar
  38. Fang, Lily H. and Ayako Yasuda (2010): Are Stars’ Opinions Worth More? The Relation between Analyst Reputation and Recommendation Values, Working Paper, SSRN, http://ssrn.%20com/abstract=687491.Google Scholar
  39. Francis, Jennifer and Donna Philbrick (1993): Analysts’ Decisions as Products of a Multi-Task Environment, Journal of Accounting Research, 31 (2): 216–230.CrossRefGoogle Scholar
  40. Francis, Jennifer and Leonard Soffer (1997): The Relative Informativeness of Analysts’ Stock Recommendations and Earnings Forecast Revisions, Journal of Accounting Research, 35 (2): 193–211.CrossRefGoogle Scholar
  41. Gleason, Cristi A., W. Bruce Johnson, and Haidan Li (2008): Valuation Model Use and Target Performance of Sell-Side Equity Analysts, Working Paper, SSRN, Scholar
  42. Hayes, Rachel M. (1998): The Impact of Trading Commission Incentives on Analysts’ Stock Coverage Decisions and Earnings Forecasts, Journal of Accounting Research, 36 (2): 299–320.CrossRefGoogle Scholar
  43. Hong, Harrison and Jeffrey D. Kubik (2003): Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts, Journal of Finance, 58 (1): 313–351.CrossRefGoogle Scholar
  44. Huberts, Lex C. and Russell J. Fuller (1995): Predictability Bias in the U.S. Equity Market, Financial Analysts Journal, 51 (2): 12–28.CrossRefGoogle Scholar
  45. Iskoz, Sergey (2003): Bias in Underwriter Analyst Recommendations: Does it Matter?, Working Paper, SSRN, Scholar
  46. Jacob, John, Thomas Z. Lys, and Margaret A. Neale (1999): Expertise in Forecasting Performance of Security Analysts, Journal of Accounting and Economics, 28 (1): 51–82.CrossRefGoogle Scholar
  47. Kerl, Alexander G. and Andreas Walter (2008): Never Judge a Book by Its Cover: What Security Analysts Have to Say Beyond Recommendations, Financial Markets and Portfolio Management, 22 (4): 289–321.CrossRefGoogle Scholar
  48. La Porta, Rafael (1996): Expectations and the Cross-Section of Stock Returns, Journal of Finance, 51 (5): 1715–1742.CrossRefGoogle Scholar
  49. Lin, Hsiou-Wei and Maureen F. McNichols (1998): Underwriting Relationships, Analysts’ Earnings Forecasts and Investment Recommendations, Journal of Accounting and Economics, 25 (1): 101–127.CrossRefGoogle Scholar
  50. Loh, Roger K. and G. Mujtaba Mian (2006): Do Accurate Earnings Forecasts Facilitate Superior Investment Recommendations?, Journal of Financial Economics, 80 (2): 455–483.CrossRefGoogle Scholar
  51. Lys, Thomas and Sungkyu Sohn (1990): The Association between Revisions of Financial Analysts’ Earnings Forecasts and Security-Price Changes, Journal of Accounting and Economics, 13 (4): 341–363.CrossRefGoogle Scholar
  52. Michaely, Roni and Kent L. Womack (1999): Conflict of Interest and the Credibility of Underwriter Analyst Recommendations, Review of Financial Studies, 12 (4): 653–686.CrossRefGoogle Scholar
  53. Mikhail, Michael B., Beverly R. Walther, and Richard H. Willis (1997): Do Security Analysts Improve Their Performance with Experience?, Journal of Accounting Research, 35 (Suppl.): 131–157.CrossRefGoogle Scholar
  54. Previts, Gary John, Robert J. Bricker, Thomas R. Robinson, and Stephen J. Young (1994): A Content Analysis of Sell-Side Financial Analyst Company Reports, Accounting Horizons, 8 (2): 55–70.Google Scholar
  55. Schipper, Katherine (1991): Analysts’ Forecasts, Accounting Horizons, 5 (4): 105–121.Google Scholar
  56. Sinha, Praveen, Lawrence D. Brown, and Somnath Das (1997): A Re-Examination of Financial Analysts’ Differential Earnings Forecast Accuracy, Contemporary Accounting Research, 14 (1): 1–42.CrossRefGoogle Scholar
  57. Stickel, Scott E. (1990): Predicting Individual Analyst Earnings Forecasts, Journal of Accounting Research, 28 (2): 409–417.CrossRefGoogle Scholar
  58. Stickel, Scott E. (1991): Common Stock Returns Surrounding Earnings Forecast Revisions: More Puzzling Evidence, The Accounting Review, 66 (2): 402–416.Google Scholar
  59. Stickel, Scott E. (1992): Reputation and Performance Among Security Analysts, Journal of Finance, 47 (5): 1811–1836.CrossRefGoogle Scholar
  60. Stickel, Scott E. (1995): The Anatomy of the Performance of Buy and Sell Recommendations, Financial Analysts Journal, 51 (5): 25–39.CrossRefGoogle Scholar
  61. White, Halbert (1980): A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica, 48 (4): 817–838.CrossRefGoogle Scholar
  62. Womack, Kent L. (1996): Do Brokerage Analysts’ Recommendations Have Investment Value?, Journal of Finance, 51 (1): 137–167.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2011

Open AccessThis article is distributed under the terms of the Creative Commons Attribution 4.0 International License (, which permits use, duplication, adaptation, distribution, and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

Authors and Affiliations

  1. 1.University of GiessenGermany

Personalised recommendations