Analysts’ extrapolative expectations in the cross-section
Journal
Journal of Economics and Business
ISSN
0148-6195
ISSN-Digital
0148-6195
Type
journal article
Date Issued
2024
Author(s)
Abstract
This paper examines extrapolative patterns of analysts’ expectations in the cross-section of firms. Using analysts’ target prices, I estimate the degree of extrapolative weighting capturing the relative weight analysts place on recent versus distant realized returns when forming their price expectation. I show considerable levels of extrapolation in the overall sample and on firm level. Results suggest considerable cross-sectional variation of extrapolation with valuation difficulty having a positive impact on the degree of extrapolative weighting. Furthermore, I construct a time-series of the degree of extrapolative weighting and argue that its time-series variation is also explained by valuation difficulty.
Language
English (United States)
Keywords
Financial Analysts
Expectation formation
Target Prices
Extrapolation in the time-series
Extrapolation in the cross-section
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier