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By Brav A., Lehavy R.

Utilizing a wide database of analysts' goal costs issued over the interval 1997-1999, we study temporary industry reactions to focus on fee revisions and long term comovement of goal and inventory prices.We ¢nd a signi¢cant industry response to the knowledge contained in analysts' goal costs, either unconditionally and conditional on contemporaneously issued inventory suggestion and profits forecast revisions. utilizing a cointegration process, we research the long term habit of marketplace and aim prices.We ¢nd that, on regular, the one-year-ahead objective fee is 28 percentage better than the present marketplace rate.

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1962 The Journal of Finance TableVII Informativeness of Target Prices Based on the Cointegration Regression The sample contains all target price announcements between January 1997 and December 1999. The table reports regression results in which the dependent variable is the market-adjusted buyand-hold abnormal returns around target price announcements. The indicator variables assume the value 1 for the relevant recommendation revision and 0 otherwise. The recommendation categories are upgrades, downgrades, and reiterations.

First, as Asquith et al. (2002) and others document, target prices are often computed as the product of forecasted earnings and an earnings multiple. Hence, controlling for the revision in the earnings forecast, the announcement of a target price provides researchers with a unique opportunity to observe how investors incorporate information on the reduced form‘‘model’’deemed correct by the analysts in forecasting future price appreciation. Our ¢ndings of a monotonic relation between abnormal returns and target price revisions, controlling for earnings forecast revisions, is consistent with the view that market participants view the magnitude of the multiple used by the analyst as informative.

The regression results are consistent with the prediction that, controlling for earnings forecast and target price revisions, more-extreme revisions in stock An Empirical Analysis of Analysts’ Target Prices 1965 TableA1 The Role of Recommendation Revisions Variable a (Intercept) b (Earnings forecast revision) g (Target price revision) Adj. 3 887 recommendations are perceived as providing more-informative signals. 479). 088). When we consider recommendation downgrades in columns 4 ^ 6, we ¢nd results consistent with the hypothesis that the magnitude of a recommendation revision conveys independent information to market participants.

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An Empirical Analysis of Analysts’ Target Prices: Short-term Informativeness and Long-term Dynamics by Brav A., Lehavy R.

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