Graduation Year
2021
Date of Submission
11-2020
Document Type
Campus Only Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
Eric Hughson
Terms of Use & License Information
Rights Information
© 2020 Alexander C Alsop
OCLC Record Number
1240505560
Abstract
There has been a considerable amount of literature on equity research analysts and their price targets, but much of it does not address how it could be used to generate alpha in a practical way. When the research does address accuracy, it does not consider that analyst’s bias and inaccuracy can be accounted for through an econometric model. This paper seeks to address these issues and determine whether there is information contained in analysts’ price targets that could be used to outperform the market. This paper employs an OLS regression model to determine if the analyst’s predicted alpha, implied through the price target, is a good predictor of realized alpha. The resulting power of the model is significantly stronger than that employed in previous research which used statistical models as the predictor rather than analyst price targets. There is also evidence that some analyst’s price targets contain more predictive power than others and some indication that this higher than average predicative power is persistent. This provides evidence that analyst price targets could be used in a portfolio construction model to outperform the S&P 500 on a risk-adjusted basis.
Recommended Citation
Alsop, Alexander, "Investigating the Power of Analyst Price Targets in Generating Abnormal Returns" (2021). CMC Senior Theses. 2558.
https://scholarship.claremont.edu/cmc_theses/2558
This thesis is restricted to the Claremont Colleges current faculty, students, and staff.
