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Analysts’ extrapolative expectations in the cross-section

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  • Oesinghaus, Andreas

Abstract

This paper examines extrapolative patterns of analysts’ expectations in the cross-section of firms. Using analysts’ target prices, I estimate the degree of extrapolative weighting capturing the relative weight analysts place on recent versus distant realized returns when forming their price expectation. I show considerable levels of extrapolation in the overall sample and on firm level. Results suggest considerable cross-sectional variation of extrapolation with valuation difficulty having a positive impact on the degree of extrapolative weighting. Furthermore, I construct a time-series of the degree of extrapolative weighting and argue that its time-series variation is also explained by valuation difficulty.

Suggested Citation

  • Oesinghaus, Andreas, 2024. "Analysts’ extrapolative expectations in the cross-section," Journal of Economics and Business, Elsevier, vol. 130(C).
    • Handle: RePEc:eee:jebusi:v:130:y:2024:i:c:s014861952400016x
    DOI: 10.1016/j.jeconbus.2024.106174
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    Keywords

    Financial Analysts; Expectation formation; Target Prices; Extrapolation in the time-series; Extrapolation in the cross-section;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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