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Why stocks with the worst expected future price development are the best investment: A psychological study of financial analysts´ reports
Stockholm University, Faculty of Social Sciences, Department of Psychology.
2011 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

Financial analysts produce investment reports containing two outputs: one recommendation and one target price. This study compared and contrasted the investment value of the two by employing recognised decision making theories. For this purpose 89.814 analyst reports, or 4.956 consensus reports, based on US data (S&P 500) was employed to form recommendation and target price portfolios with a holding period of 1, 3, 6, 12 and 24 months. The findings indicated a negative relationship between the two variables. Seeking to make profits, it therefore seems as if an investor should buy stocks with the most favourable recommendations but, surprisingly, also stocks with the least optimistic target prices. The explanation for the anomaly was primarily sought in the compatibility principle, preference reversals, configural weight theory or temporal distance theory and possibly in the analysts’ evasion of regret and protection of their reputation and employment.

Place, publisher, year, edition, pages
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URN: urn:nbn:se:su:diva-55315OAI: diva2:402597
2011-03-15, 13:00
Social and Behavioural Science, Law
Available from: 2011-04-19 Created: 2011-03-08 Last updated: 2011-04-19Bibliographically approved

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