Three Essays on Financial Analysts' Stock Price Forecasts

  • Tuan Ho

Student thesis: Phd


In this thesis, I study three aspects of sell-side analysts' stock price forecasts, henceforth target prices: analyst teams' target price forecast characteristics, analysts' use of information to revise target prices, and determinants of target price disagreement between analysts.The first essay studies the target price forecast performance of team analysts in the UK and finds that teams issue timelier but not less accurate target prices. Unlike evidence from previous studies, my findings suggest that analyst teamwork may improve forecast timeliness without sacrificing forecast accuracy. However, market reactions to team target price revisions are not significantly different from those to individual analyst target price revisions, suggesting that although target prices issued by analyst teams are timelier and not less accurate than those of individual analysts, investors do not consider analyst team target prices more informative. I conjecture that analysts may work in teams to meet the demand to cover more companies while maintaining the quality of research by individual team members rather than to issue more informative reports.In the second essay, I study how analysts revise their target prices in response to new information implicit in recent market returns, stock excess returns and other analysts' target price revisions. The results suggest that analysts' target price revisions are significantly influenced by market returns, stock excess return and other analysts' target price revisions. I also find that the correlation between target price revisions and stock excess returns is significantly higher when the news implicit in these returns is bad rather than good. I conjecture that analysts discover more bad news from the information in stock excess returns because firms tend to withhold bad news, disclosing it only when it becomes inevitable, while they disclose good news early. Using a new measure of bad to good news concentration, I show that the asymmetric responsiveness of target price revisions to positive and negative stock excess returns is significant for firms with the highest concentration of bad news but is insignificant for firms with the lowest concentration of bad news. I argue that firms with the highest concentration of bad news are more likely to withhold and accumulate bad news. The findings, therefore, support my hypothesis that analysts discover more bad news than good news from stock returns because firms tend to withhold bad news, disclosing it only when it is inevitable. The third essay examines the determinants of analyst target price disagreement. I find that while disagreement in short-term earnings and in long-term earnings growth forecasts are significant determinants, recent 12-month idiosyncratic return volatility has the strongest explanatory power for target price disagreement. The findings suggest that target price disagreement is driven not only by analyst disagreement about short-term earnings and long-term earnings growth, but also by differences in analysts' opinions about the impact of recent firm-specific events on value drivers beyond short-term future earnings and long-term growth, which are eventually reflected in past idiosyncratic return volatility.
Date of Award1 Aug 2013
Original languageEnglish
Awarding Institution
  • The University of Manchester
SupervisorNorman Strong (Supervisor)


  • Disagreement
  • Withhold bad news
  • Financial analysts
  • Target prices

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