Do Analysts' Price Targets Change Stock Prices? The Impact of Price Targets on Stocks with Different Characteristics.

Abstract

This thesis analyzes the impact of financial analysts’ price targets on stock prices. According to the efficient market hypothesis, all information should be incorporated in the stock price, meaning that financial analysts’ price targets should not influence the stock price. Further, we investigate if volatility or tangibility have an impact on the extend of the stock price changes. Using the event study methodology, we analyze if any abnormal returns occur the days surrounding the event date. We define an event as consensus stock price target change of more than three percent. Our most important results are: First, when a new price target is released, on average stock prices move in the same direction as the analysts’ price targets. Second, downgrades lead to a stronger price reaction than upgrades. Third, both tangibility and volatility influence how strongly a stock responds to the price target. We see that low volatile stocks and high tangible stocks respond to a lower degree than their counterparts. Our paper also includes suggestions for further research on this topic and concludes that financial analysts’ price targets do impact stock prices.