An Empirical Analysis of Analysts' Target Prices: Short-term Informativeness and Long-term Dynamics

Abstract

Using a large database of analysts' target prices issued over the period 1997–1999, we examine short-term market reactions to target price revisions and long-term comovement of target and stock prices. We find a significant market reaction to the information contained in analysts' target prices, both unconditionally and conditional on contemporaneously issued stock recommendation and earnings forecast revisions. Using a cointegration approach, we analyze the long-term behavior of market and target prices. We find that, on average, the one-year-ahead target price is 28 percent higher than the current market price.