Analysts earnings forecast, recommendation, and target price revisions

Ronen Feldman*, Joshua Livnat, Yuan Zhang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

22 Scopus citations


In our study, we examine the immediate and delayed market effects of analysts revisions of earnings forecasts, target prices, and recommendations. We find that all three types of revisions are positively and significantly associated with immediate market reactions. Immediate market reactions to target price and recommendation revisions are, however, significantly stronger than market reactions to earnings forecast revisions. Counterbalancing the stronger, immediate market effects of target price and recommendation revisions is their scarcity; there are substantially fewer target price revisions and even fewer recommendation revisions than earnings forecast revisions. Examining whether investors can use previously announced revisions to create portfolios and gain future excess returns, we find that by far the best strategy is to combine all three signals (i.e., using revisions of earnings forecasts in conjunction with revisions in target prices or recommendations). Further, contrary to the evidence about the immediate market reactions to the revisions, portfolios based on earnings forecast revisions in the previous month earn consistently higher excess returns than portfolios based on the other two types of revision signals, whether we focus on hedge portfolios or long-only portfolios. Our study can be useful to portfolio managers who use analysts quantitative outputs in constructing portfolios. Our analyses show that all three revisions should be combined in order to form a more profitable strategy. Our results also shed further light on market reactions to target price revisions, which have not yet been studied extensively in academic research. We show their importance in affecting returns, especially in the short window immediately around the target price revisions.

Original languageAmerican English
Pages (from-to)120-132
Number of pages13
JournalJournal of Portfolio Management
Issue number3
StatePublished - Mar 2012


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