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Does analyst ranking affect how informative target prices are to institutional investors?

Research output: Working paper

Published
Publication date2015
Place of PublicationLancaster
PublisherThe Department of Accounting and Finance
Number of pages37
<mark>Original language</mark>English

Abstract

Evidence shows that market participants value analysts’ target prices. There is limited evidence, however, on how target price revisions influence investors’ decisions. I examine whether analyst ranking status affects institutional investors’ decisions to incorporate target price information into their investment strategies. This examination is relevant to the economic question: Does analyst reputation mitigate or exacerbate the conflicts of interest that analysts face? Consistent with institutional investor trades being based on superior information, I observe differences in the information content of target price revisions by star and non-star analysts. Additionally, a duration analysis shows that low target price quality significantly increases the hazard of institutional investors not voting analysts as ‘stars’.