Analysts and anomalies |
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| Affiliation: | 1. Rady School of Management, University of California, San Diego, USA;2. McDonough School of Business at Georgetown University, USA;3. Carroll School of Management, Boston College, USA;1. Booth School of Business, The University of Chicago, USA;2. Fuqua School of Business, Duke University, USA;1. Duke University, USA;2. Cornell University, USA;1. S.C. Johnson School of Management, Cornell University, Ithaca, NY 14853, USA;2. Rotman School of Management, University of Toronto, Toronto, ON, M5S 3E6, USA;3. Debbie and Jerry Ivy College of Business, Iowa State University, Ames, IA, 50010, USA |
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| Abstract: | Analysts' price targets and recommendations contradict stock return anomaly variables. Using an index based on 125 anomalies, we find that analysts' annual stock return forecasts are 11% higher for anomaly-shorts than for anomaly-longs. Anomaly-shorts’ return forecasts are excessively optimistic, exceeding realized returns by 34%. Recommendations also tend to be more favorable for anomaly-shorts, although this result varies across anomaly types. Consistent with analysts' slowly incorporating anomaly information, anomalies forecast revisions in both price targets and recommendations. Our findings imply that investors who follow analysts' actionable information contribute to mispricing. |
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| Keywords: | Analysts Cross-sectional return predictability Market efficiency G00 G14 L3 C1 |
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