• Andrey KUDRYAVTSEV The Economics and Management Department, The Max Stern Yezreel Valley College, Israel
  • Shosh SHAHRABANI The Economics and Management Department, The Max Stern Yezreel Valley College, Israel
  • Aviad DIDI The Max Stern Yezreel Valley College, Israel
  • Eyal GESUNDHEIT The Max Stern Yezreel Valley College, Israel


In the present study, we attempt to shed light on potential factors affecting how investors react to target price announcements made by security analysts. More specifically, the study focuses on cross-sectional differences between the magnitude of reactions for stocks whose prices have increased and reactions for stocks whose prices decreased immediately prior to such announcements. Employing a sample of target price announcements classified as "buy" (positive) recommendations for Israeli stocks, we document their significantly positive effect on stock prices both on the day of the announcement and during a short period following the announcement. The effect of target price releases is also found to be significantly stronger for smaller stocks. Moreover, we document that those stocks that have experienced positive cumulative abnormal returns prior to target price releases yield significantly higher abnormal returns on average, both on the event day and during a short subsequent period. We explain this finding by the effect of the availability heuristic on investors' perceptions and decisions. Namely, we suggest that investors may expect target price releases to have a stronger effect on stock prices if these releases are preceded by stock returns of the same sign as the recommendation itself (making the recommendation more available, or in other words, subjectively more informative).


[1] Asquith, Paul, Michael B. Mikhail, and Andrea S. Au. (2005). Information content of equity analyst reports. Journal of Financial Economics,75:245-82, http://dx.doi.org/10.1016/j.jfineco.2004.01.002.
[2] Bae, Kee-Hong, Rene M. Stulz, and Hongping Tan. (2008). Do local analysts know more? A cross-country study of performance of local analysts and foreign analysts. Journal of Financial Economics, 88: 581-606, http://dx.doi.org/10.1016/j.jfineco.2007.02.004.
[3] Bandyopadhyay, Sati P., Lawrence D. Brown, and Gordon D. Richardson. 1995. Analysts' use of earnings forecasts in predicting stock returns: Forecast horizon effects. International Journal of Forecasting, 11: 429-45, http://dx.doi.org/10.1016/0169-2070(95)00593-0.
[4] Barber, Brad, Reuven Lehavy, Maureen McNichols, and Brett Trueman. 2001. Can investors profit from the prophets? Security analyst recommendations and stock returns. Journal of Finance 56:531-63, http://dx.doi.org/10.1111/0022-1082.00336.
[5] Barber, Brad M., Reuven Lehavy, and Brett Trueman. 2010. Ratings changes, ratings levels, and the predictive value of analysts’ recommendations. Financial Management, 39:533-53.
[6] Barber, Brad M., and Terrance Odean. 2008. All that glitters: The effect of attention and news on the buying behavior of individual and institutional investors. Review of Financial Studies, 21:785-818, http://dx.doi.org/10.1093/rfs/hhm079.
[7] Bianchini, Roberto, Stefano Bonini, Antonio Salvi, and Laura Zanetti. 2008. Portfolio returns and target prices, Working paper, Bocconi University.
[8] Boni, Leslie, and Kent L. Womack. 2006. Analysts, industries, and price momentum. Journal of Financial and Quantitative Analysis 41: 85-109, http://dx.doi.org/10.1017/S002210900000243X.
[9] Bonini, Stefano, Laura Zanetti, Roberto Bianchini, and Antonio Salvi. 2010. Target price accuracy in equity research. Journal of Business Finance and Accounting 37:1177-1217, http://dx.doi.org/10.1111/j.1468-5957.2010.02209.x.
[10] Bradshaw, Mark T. 2002. The use of target prices to justify sell-side analysts’ abilities to predict target prices. Accounting Horizons 16:27-41.
[11] Bradshaw, Mark T., Lawrence D. Brown, and Kelly Huang. 2013. Do sell-side analysts exhibit differential target price forecasting ability? Review of Accounting Studies 4:930-55, http://dx.doi.org/10.1007/s11142-012-9216-5.
[12] Brav, Alon, and Reuven Lehavy. 2003. An empirical analysis of analysts’ target prices: Short-term informativeness and long-term dynamics. Journal of Finance 58:1933-67.
[13] Brown, Lawrence D. 1993. Earnings forecasting research: Its implications for capital markets research. International Journal of Forecasting 9:295-320, http://dx.doi.org/10.1016/0169-2070(93)90023-G.
[14] Campbell, John Y., Andrew W. Lo, and A. Craig Mackinlay. 1997. The Econometrics of Financial Markets. Princeton University Press.
[15] Da, Zhi, and Ernst Schaumburg. 2011. Relative valuation and analyst target price forecasts. Journal of Financial Markets 14:161-92, http://dx.doi.org/10.1016/j.finmar.2010.09.001.
[16] Daniel, Kent, David Hirshleifer, and Siew H. Teoh. 2002. Investor psychology in capital markets: Evidence and policy implications. Journal of Monetary Economics 49:139-209, http://dx.doi.org/10.1016/S0304-3932(01)00091-5.
[17] Demirakos, Efthimios G., Norman C. Strong, and Martin Walker. 2010. Does valuation model choice affect target price accuracy? European Accounting Review 19:35-72, http://dx.doi.org/10.1080/09638180902990630.
[18] Elgers, Pieter T.., May H. Lo, and Ray J. Pfeiffer. 2001. Delayed security price adjustments to financial analysts' forecasts of annual earnings. The Accounting Review 76:613-32, http://dx.doi.org/10.2308/accr.2001.76.4.613.
[19] Francis, Jennifer, and Leonard Soffer. 1997. The relative informativeness of analysts’ stock recommendations and earnings forecast revisions. Journal of Accounting Research 35:193-211.
[20] Frieder, Laura. 2003. Evidence on behavioral biases in trading activity. Working Paper, UCLA, The Anderson School.
[21] Ganzach, Yoav, 2001. Judging risk and return of financial assets. Organizational Behavior and Human Decision Processes 83:353-70, http://dx.doi.org/10.1006/obhd.2000.2914.
[22] Gleason, Cristi A., and Charles M. Lee. 2003. Analyst forecast revisions and market price discovery. The Accounting Review 78:193-225, http://dx.doi.org/10.2308/accr.2003.78.1.193.
[23] Green, Clifton T. 2006. The value of client access to analyst recommendations. Journal of Financial and Quantitative Analysis 41:1-24, http://dx.doi.org/10.1017/S0022109000002404.
[24] Huang, Joshua, G. Mujtaba Mian, and Srinivasan Sankaraguruswamy. 2009. The value of combining the information content of analyst recommendations and target prices. Journal of Financial Markets 12:754–77, http://dx.doi.org/10.1016/j.finmar.2009.07.002.
[25] Ivkovic, Zorzn, and Narasimhan Jegadeesh. 2004. The timing and value of forecast and recommendation revisions. Journal of Financial Economics 73:433-63, http://dx.doi.org/10.1016/ j.jfineco.2004.03.002.
[26] Jegadeesh, Narasimhan, and Woojin Kim. 2010. Do analysts herd? An analysis of recommendations and market reactions. Review of Financial Studies 23:901-37, http://dx.doi.org/ 10.1093/rfs/hhp093.
[27] Jegadeesh, Narasimhan, Joonghyuk Kim, Susan D. Krische, and Charles M.C. Lee. 2004. Analyzing the analysts: When do recommendations add value? Journal of Finance 59:1083-1124, http://dx.doi.org/10.1111/j.1540-6261.2004.00657.x.
[28] Kliger, D., Kudryavtsev, A. 2010. The availability heuristic and investors’ reaction to company-specific events. Journal of Behavioral Finance 11:50-65.
[29] Lee, Byunghwan John O’Brien, and K. Sivaramakrishnan. 2007. An analysis of financial analysts’ optimism in long-term growth forecasts. Journal of Behavioral Finance 9:171-84.
[30] Loh, Roger K., and Rene M. Stulz. 2011. When are analyst recommendation changes influential? Review of Financial Studies 24: 593-627, http://dx.doi.org/10.1093/rfs/hhq094.
[31] Lyssimachou, D., Lee, E., Walker, M. 2009. How do analyst characteristics and affiliation influence the quality of their target price forecasts? Working paper, Manchester Business School.
[32] Mehra, Rajnish. 2003. The equity premium: Why is it a puzzle. Financial Analysts Journal 59:54–69.
[33] Ramnath, S., Rock, S., Shane, P.B. 2008. Financial analysts' forecasts and stock recommendations: A review of the research. Foundations and Trends in Finance 2:311-420, http://dx.doi.org/10.1561/0500000023.
[34] Schipper, K.. 1991. Analysts’ forecasts. Accounting Horizons, 5:105-31.
[35] Shiller, Robert J. 1998. Human behavior and the efficiency of the financial system. NBER Working Paper.
[36] Stickel, Scott E. 1991. Common stock returns surrounding earnings forecasts revisions: More puzzling evidence. The Accounting Review 66:402-16.
[37] Stickel, Scott E. 1995. The anatomy of the performance of buy and sell recommendations. Financial Analysts Journal 51:25-39, http://dx.doi.org/10.2469/faj.v51.n5.1933.
[38] Tversky, Amos, and Daniel Kahneman. 1973. Availability: A heuristic for judging frequency and probability. Cognitive Psychology 4:207-32, http://dx.doi.org/10.1016/0010-0285(73)90033-9.
[39] Tversky, Amos, and Daniel Kahneman, 1974. Judgment under Uncertainty: Heuristics and Biases. Science, 185, 1124-1131, http://dx.doi.org/10.1126/science.185.4157.1124.
[40] Womack, Kent L. 1996. Do brokerage analysts’ recommendations have investment value? Journal of Finance 51:137-68.
How to Cite
KUDRYAVTSEV, Andrey et al. DIFFERENTIAL EFFECTS OF TARGET PRICE RELEASES ON STOCK PRICES: PSYCHOLOGICAL ASPECTS. Theoretical and Practical Research in the Economic Fields, [S.l.], v. 5, n. 2, p. 153-166, june 2017. ISSN 2068-7710. Available at: <https://journals.aserspublishing.eu/tpref/article/view/1230>. Date accessed: 23 jan. 2022. doi: https://doi.org/10.14505//tpref.v5.2(10).03.