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|Title:||An Empirical Investigation of Security Analysts' Return Expectations (Valuation, Asset Pricing, Heterogeneity)|
|Department / Program:||Finance|
|Degree Granting Institution:||University of Illinois at Urbana-Champaign|
|Abstract:||The current literature indicates that the asset pricing models presently in vogue do not describe the real world accurately. While there exists a need for better models it appears that an understanding of the heterogeneity among investors holds the key to the development of more realistic valuation models.
The objective of this thesis is to examine the issue of heterogeneity using a unique data set consisting of expected returns on a number of stocks provided by several analysts. The empirical analysis is carried out from three different perspectives. First, the consensus/divergence among the forecasters and the relationship between divergence of opinion and a few firm-specific characteristics are examined. Second, the relative predictive accuracies are explored. Finally, the ex-ante returns are scrutinized using the current asset pricing frameworks.
The chief findings of this research are: (1) While analysts exhibit low degree of consensus on stock return expectations, they appear to agree on the direction of market movement. (2) There is strong evidence against the belief that beta is a sufficient measure of risk. (3) Divergence of opinion is positively correlated with risk measures but negatively related to size of the firm. (4) The forecasting horizons of the analysts seem to be long-term rather than short-term. (5) The evidence demonstrates the inefficacy of the current asset pricing frameworks in explaining investors' return expectations. Also, the study provides a contrast between the two popular theories of valuation, namely, CAPM and APT.
Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1986.
|Date Available in IDEALS:||2014-12-16|