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The effect of price magnitude on analysts' forecasts: evidence from the lab

Author

Listed:
  • Tristan Roger

    (DRM-Finance - DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Wael Bousselmi

    (CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz])

  • Patrick Roger

    (LARGE - Laboratoire de recherche en gestion et économie - UNISTRA - Université de Strasbourg - L'europe en mutation : histoire, droit, économie et identités culturelles - UNISTRA - Université de Strasbourg - CNRS - Centre National de la Recherche Scientifique)

  • Marc Willinger

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

Abstract

Recent research in finance shows that the magnitude of stock prices influences analysts' price forecasts (Roger et al., 2018). In this paper, we report the results o fa novel experiment where some of the participants in a continuous double auction market act as analysts and forecast future prices. Participants engage in two successive markets: one in which the fundamental value is a small price and one in which the fundamental value is a large price. Our results indicate that analysts' forecasts are more optimistic in small price markets compared to large price markets. We also find that analysts strongly anchor on past price trends when building their price forecasts. Overall, our findings support the existence of a small price bias.

Suggested Citation

  • Tristan Roger & Wael Bousselmi & Patrick Roger & Marc Willinger, 2018. "The effect of price magnitude on analysts' forecasts: evidence from the lab," CEE-M Working Papers hal-01954919, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    • Handle: RePEc:hal:wpceem:hal-01954919
    Note: View the original document on HAL open archive server: https://hal.science/hal-01954919
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    References listed on IDEAS

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