Wen-Liang G. Hsieh, Lee, C. S., and Wang, C. J. 2013. Target Price Accuracy in Foreign Analysts’ Reports for Taiwan Stocks. NTU Management Review, 24 (1): 43-70. https://doi.org/10.6226/NTURM2013.AUG.R13005
Wen-Liang G. Hsieh, Professor, Institute of Finance, National Chiao Tung University
Chin-Shen Lee, Professor, Department of Finance, Ming Chuan University
Chien-Ju Wang, Senior Specialist, Lextar Electronics Corporation
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.
Keywords
analysts’ reportstarget price forecastsstock recommendation