Thousands of reports are published yearly by brokerage houses and investment banks, providing trading advice to investors and forecasts about the future market price of stocks (so-called target prices). Using a database of reports about blue chips listed on the Italian stock market, we measured the forecasting ability of equity analysts in determining target prices. After outlining considerable levels of inaccuracy, we explored the weight of the various factors that might influence the accuracy of different analyst firms. More precisely, we looked at two alternative assumptions: the no-conflict hypothesis (analyst errors are due to the intrinsic difficulty of the task) and the conflict-of-interest hypothesis (analyst errors are partly or mainly due to an optimistic bias aimed at securing/retaining investment banking clients or at boosting trading). In a context of generalised excessive optimism of equity analysts, our evidence supported the first hypothesis, showing even a certain over-pessimism of the most active traders and investment bankers.

Accuracy and bias of equity analysts in an environment characterised by higher disclosure. Empirical evidence from the Italian market.

DE VINCENTIIS, Paola
2010

Abstract

Thousands of reports are published yearly by brokerage houses and investment banks, providing trading advice to investors and forecasts about the future market price of stocks (so-called target prices). Using a database of reports about blue chips listed on the Italian stock market, we measured the forecasting ability of equity analysts in determining target prices. After outlining considerable levels of inaccuracy, we explored the weight of the various factors that might influence the accuracy of different analyst firms. More precisely, we looked at two alternative assumptions: the no-conflict hypothesis (analyst errors are due to the intrinsic difficulty of the task) and the conflict-of-interest hypothesis (analyst errors are partly or mainly due to an optimistic bias aimed at securing/retaining investment banking clients or at boosting trading). In a context of generalised excessive optimism of equity analysts, our evidence supported the first hypothesis, showing even a certain over-pessimism of the most active traders and investment bankers.
EMFI WPs
Adeimf Editore
3/2010
1
42
9788863510041
http://www.adeimf.it
Paola De Vincentiis
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2318/71967
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