Abstract

The study analyzes the accuracy of target price forecasts published by foreign analysts for listed Taiwan stocks. Using data in 11,446 analysts reports issued over the period of 2006 to 2010, we measure whether target prices are achieved and to what extent the target prices over- or under-estimate the actual stock prices. For the overall sample, less than 50% of target prices were achieved by the actual prices within one year, of which, a dominant proportion was achieved in 3 months after report issuing. Reports with favorable recommendation have lower percentage of achievement and tend to be over optimistic in target forecasts. The study finds that foreign institutions held relatively more shares of stocks that analysts over-forecasted. This suggests that the target prices do affect the portfolio decision of the buy-side clients, who were unable to tell the systematic bias in the forecasts. We also find that target price forecasts tend to overvalue large firms receiving modest recommendations, stocks with fewer analyst reports, high price-to-book ratio stocks, but under-estimate low price-to-book ratio stocks.