Do analysts predict market returns?
Sell-side analysts working for investment banks routinely issue forward-looking price targets for the stocks they cover. Data providers like Bloomberg aggregate the target prices published by sell-side analysts to derive a marketwide consensus price target. We have asked ourselves whether the return outlook given by analysts on aggregate (consensus estimate) does provide information about future market performance. The answer is simple and disappointing but yields some intriguing insights into the sell-side analyst’s reaction function.