Nội dung

University of Arkansas, Fayetteville ScholarWorks@UARK Theses and Dissertations 7-2015 Do Analysts Understand Momentum? Evidence from Target Prices Benjamin Carl Anderson University of Arkansas, Fayetteville Follow this and additional works at: http://scholarworks.uark.edu/etd Part of the Accounting Commons Recommended Citation Anderson, Benjamin Carl, "Do Analysts Understand Momentum? Evidence from Target Prices" (2015). Theses and Dissertations. 1214. http://scholarworks.uark.edu/etd/1214 This Dissertation is brought to you for free and open access by ScholarWorks@UARK. It has been accepted for inclusion in Theses and Dissertations by an authorized administrator of ScholarWorks@UARK. For more information, please contact scholar@uark.edu, ccmiddle@uark.edu. Do Analysts Understand Momentum? Evidence from Target Prices Do Analysts Understand Momentum? Evidence from Target Prices A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Business Administration by Benjamin Anderson Truman State University Bachelor of Science in Accounting, Economics, 2010 Truman State University Master of Accountancy, 2011 July 2015 University of Arkansas This dissertation is approved for recommendation to the Graduate Council. ____________________________________ Dr. James N. Myers Dissertation Director ____________________________________ Dr. Linda A. Myers Committee Member ___________________________________ Dr. Amy Farmer Committee Member ABSTRACT Target prices are analysts’ forecasts of a firm’s stock price. Although target prices can be used to help market participants make investment decisions, much is still unknown about how analysts make these forecasts. Because prior literature documents momentum in stock returns, in this paper, I examine whether target prices reflect the information in returns over the six months prior to the target price announcement date. I find that target prices systematically underestimate the persistence of these six month returns. I further find that the forecasted return in target price revisions is more pessimistic following periods of very good stock performance and more optimistic following periods of very poor stock performance. However, I find that target prices made by ‘All-Star’ analysts reflect the information in six month returns when these target prices follow a period of very poor stock performance. ACKNOWLEDGEMENTS I gratefully acknowledge the support of my dissertation committee: James Myers (Chair), Linda Myers, and Amy Farmer. I also thank T.J. Atwood, Jean Bedard, Lauren Cunningham, Sami Keskek, Karen Pincus, Jaclyn Prentice, Roy Schmardebeck, Jonathan Shipman, and Ari Yezegel for their helpful comments and suggestions. I thank workshop participants at Bentley University, Idaho State University, Oklahoma State University, San Jose State University, the University of Arkansas, and the University of Cincinnati for providing helpful comments and suggestions. I am grateful to the University of Arkansas Doctoral Academy Fellowship for funding during my program. I am also extremely grateful to my ‘long-lost brother’ James Myers for his support and friendship and to Linda Myers for her guidance and camaraderie throughout the doctoral program. I owe very special thanks to my mother, father, grandparents, and sisters for their endless love, support, and understanding. I am thankful to Jacob Haislip for annoying office companionship and to Jaclyn Prentice for not-annoying office companionship. I am grateful to Caroline Burke and Ashley Douglass for cosmetic recommendations and to Lyle Roy Schmardebeck for rock-solid esprit de corps during conference travel. DEDICATION This dissertation is dedicated to my dearly departed grandfather, Charles Warren Totten. From a young age he encouraged my intellectual curiosity and helped me to gain an appreciation for an empirical perspective on the world. TABLE OF CONTENTS I. INTRODUCTION .....................................................................................................................1 II. PRIOR RESEARCH AND HYPOTHESIS DEVELOPMENT ................................................7 A. Momentum in Stock Returns .....................................................................................................7 B. Target Prices ..............................................................................................................................7 C. Analysts’ Use of Returns ...........................................................................................................8 III. RESEARCH DESIGN ...............................................................................................................9 IV. EMPIRICAL RESULTS ..........................................................................................................14 A. Data and Sample ......................................................................................................................14 B. Descriptive Statistics and Univariate Analyses .......................................................................15 C. Multivariate Analysis ...............................................................................................................17 V. SUPPLEMENTARY ANALYSES .........................................................................................18 A. Examining Target Price Revisions...........................................................................................18 B. Examining Short-Window Returns ..........................................................................................25 C. Analyst Characteristics ............................................................................................................28 D. Separating Negative and Positive Momentum Returns ...........................................................36 E. Alternative Methods for Handling Delisting ...........................................................................39 F. Controlling for Other Financial Information ...........................................................................44 G. Following Mishkin (1983) Type Methodology .......................................................................46 VI. CONCLUSION ........................................................................................................................47 REFERENCES ..............................................................................................................................50 LIST OF TABLES 1. Sample Selection ......................................................................................................................53 2. Descriptive Statistics ................................................................................................................54 3. Panel A – Mean MomentumReturn, ForecastReturn, and Difference between ForecastReturn and FutureReturn by MomentumReturn Quintile ....................................................................55 Panel B – Univariate Tests of Differences in Difference between ForecastReturn and FutureReturn ............................................................................................................................55 4. Do Analysts Understand Momentum? .....................................................................................56 5. Do Analysts Understand Momentum? Examining Target Price Revisions .............................58 6. Do Analysts Understand Momentum? Examining Target Price Revisions Panel A – Prior Target Price Too High ....................................................................................60 Panel B – Prior Target Price Too Low.....................................................................................60 7. Do Analysts Understand Momentum? Examining Target Price Revisions Panel A – Low Prior TP Accuracy ..........................................................................................62 Panel B – High Prior TP Accuracy ..........................................................................................62 8. Panel A – Mean MomentumReturn, ChgForecastReturn, and ChgTargetPrice by MomentumReturn Quintile ......................................................................................................64 Panel B – Univariate Tests of Differences in ChgForecastReturn in Extreme Quintiles ........64 Panel C – Univariate Tests of Differences in ChgTargetPrice in Extreme Quintiles ..............64 9. Examining Target Price Revisions – Change in ForecastReturn .............................................66 10. Examining Target Price Revisions – Change in Target Price..................................................67 11. Panel A – Mean ForecastReturn and FutureReturn by 5DayReturn Quintiles ........................68 Panel B – Univariate Tests of Differences in Difference between ForecastReturn and FutureReturn ............................................................................................................................68 12. Examining Short-Window Returns ..........................................................................................69 13. Do Analysts Understand Momentum? Controlling for Analyst Characteristics .....................71 14. Do Analysts Understand Momentum? Panel A – High General Experience ........................................................................................73 Panel B – Low General Experience ........................................................................................73 15. Do Analysts Understand Momentum? Panel A – High Firm-Specific Experience...............................................................................75 Panel B – Low Firm-Specific Experience ..............................................................................75 16. Do Analysts Understand Momentum? Panel A – Less Complexity......................................................................................................77 Panel B – Greater Complexity ................................................................................................77 17. Do Analysts Understand Momentum? Panel A – Large Brokerage Size ..............................................................................................79 Panel B – Small Brokerage Size .............................................................................................79 18. Do Analysts Understand Momentum? Panel A – AllStar1 ...................................................................................................................81 Panel B – Not AllStar1 ...........................................................................................................81 19. Do Analysts Understand Momentum? Panel A – AllStar2 ...................................................................................................................83 Panel B – Not AllStar2 ...........................................................................................................83 20. Do Analysts Understand Momentum? Panel A – AllStar3 ...................................................................................................................85 Panel B – Not AllStar3 ...........................................................................................................85 21. Do Analysts Understand Momentum? Positive MomentumReturn ........................................87 22. Do Analysts Understand Momentum? Negative MomentumReturn .......................................88 23. Do Analysts Understand Momentum? Alternative Delisting Method 1 .................................90 24. Do Analysts Understand Momentum? Alternative Delisting Method 2 .................................92 25. Do Analysts Understand Momentum? Alternative Delisting Method 3 .................................94 26. Do Analysts Understand Momentum? Alternative Delisting Method 4 .................................96 27. Do Analysts Understand Momentum? Alternative Delisting Method 5 .................................98 28. Do Analysts Understand Momentum? Excluding Delisting Firms ......................................100 29. Do Analysts Understand Momentum? Controlling for Other Financial Information............102 30. Do Analysts Understand Momentum? Controlling for Other Financial Information and Analyst Characteristics .........................................................................................................104 31. Do Analysts Understand Momentum? Mishkin-Type Methodology ....................................106