Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7356486 | Journal of Banking & Finance | 2018 | 51 Pages |
Abstract
Asset pricing tests often replace ex ante return expectation with ex post realization. The large deviation between the two drastically weakens the power of these tests. This paper proposes to use analysts consensus price target for a stock as the market expectation of the stock's future price to directly construct the stock's expected excess return. Analyzing the expected excess return behavior both over time and across different stocks shows that classic asset pricing theory works much better on ex ante return expectations than on ex post realizations. The analysis also provides new insights on the pricing of common equity risk factors.
Keywords
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Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Liuren Wu,