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Do analysts cater to investor beliefs via target prices

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  • Chen, An-Sing
  • Chang, Chong-Chuo
  • Cheng, Lee-Young
  • Tu, Hsing-Yu

Abstract

This study examines analyst target price bias within the framework of catering theory. Given that analyst catering is more probable when the clients of the analyst forecasts are less sophisticated investors who are less likely detect it, we focus on a unique stock market where individual investors rather than institutions are the predominant group and account for 75% of the total security trading. Our results show that analysts do cater to investors via overshooting actual end-of-forecast-period prices even after controlling market sentiment index, analyst and company characteristics. Furthermore, results show that foreign analysts produced more biased target prices compared to domestic peers.

Suggested Citation

  • Chen, An-Sing & Chang, Chong-Chuo & Cheng, Lee-Young & Tu, Hsing-Yu, 2016. "Do analysts cater to investor beliefs via target prices," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 232-252.
    • Handle: RePEc:eee:reveco:v:44:y:2016:i:c:p:232-252
    DOI: 10.1016/j.iref.2016.04.005
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    Cited by:

    1. Cheng, Lee-Young & Su, Yi-Chen & Yan, Zhipeng & Zhao, Yan, 2019. "Corporate governance and target price accuracy," International Review of Financial Analysis, Elsevier, vol. 64(C), pages 93-101.
    2. Ji, Xu & Dong, Yan & Vagnani, Gianluca & Yang, Xiaoqi, 2024. "Stock market reactions and optimism bias in analysts’ earnings forecasts: An analysis of China's stock markets," Finance Research Letters, Elsevier, vol. 59(C).
    3. Mu-Shu Yun & Lee-Young Cheng & Yan Zhao, 2023. "Customer concentration and target price accuracy," Review of Quantitative Finance and Accounting, Springer, vol. 61(3), pages 995-1028, October.

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    More about this item

    Keywords

    Target prices; Investor sentiment; Catering theory;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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