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Analyst target price and dividend forecasts and expected stock returns

Author

Listed:
  • Jinji Hao

    (Victoria University of Wellington)

  • Jonathon Skinner

    (New Zealand’s Exchange)

Abstract

This paper examines whether adding expected dividend yields implied by analyst dividend forecasts to expected capital gains implied by analyst target prices improves the portfolio strategy of buying stocks with the highest expected returns and selling stocks with the lowest expected returns. We find that the strategy based on the expected total returns performs only slightly better at the 1-month horizon because the short-term return predictability of the expected dividend yield is weak. We find that the strategy generates significant abnormal returns regardless of sorting the stocks universally or within industries, although sorting stocks within industries improves the performance.

Suggested Citation

  • Jinji Hao & Jonathon Skinner, 2023. "Analyst target price and dividend forecasts and expected stock returns," Journal of Asset Management, Palgrave Macmillan, vol. 24(2), pages 108-120, March.
    • Handle: RePEc:pal:assmgt:v:24:y:2023:i:2:d:10.1057_s41260-022-00283-z
    DOI: 10.1057/s41260-022-00283-z
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Target price; Dividend forecast; Return predictability;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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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