Analysts Forecasts

Advance Questions

Information content of equity analyst reports

Required reading: Page 245-259, 276-281

The following questions would help you read through this paper and prepare for the discussion of this paper in class.

1. How does a typical analyst report look like? What are the major signals that you can use / construct for trading purpose?

-culmination of a process that includes the collection, evaluation, and dissemination of information related to a firm’s future performance

-Include earning forecast, stock recommendation (buy, hold, sell) and price target (SKIN AND BONES)

-Quantitative and qualitative analysis supporting summary (MEAT)

-Major signal are the three mentioned above and changes in criteria

-Rank (0-9) 9 most positive

2. How to measure the accuracy of price targets? Can you construct other measures of your own?

-consider a price target prediction to be accurate if the analyzed firm’s stock price equals or exceeds the projected price at any time during the 12-month period following the release of a report.

-the remaining 22 targets that forecast price decreases, we consider an analyst to be accurate and the target achieved if the stock price falls below the price target

-Adjust accuracy by time period

-Maximum and minimum target price

-Consensus forecasts (compare your target price vs consensus)

3. How to quantify the justifications for an analyst’s opinion about the underlying firm?

-Strength of arguments

-variable is computed by aggregating the number of positive remarks less the number of negative remark

-Table 1-

-Look at every word at rate as positive and negative. Add it up and determine if report is positive or neagtive

4. How to measure the market’s reaction to the release of analyst reports?

-CAR is the five-day market adjusted cumulative abnormal return centered on the report release date (+2/-2)

-This allows for possible delays by a brokerage in delivering its forecasts to Zacks or for leaks...