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Analyst Target Price Optimism Around the World

We examine the determinants of the well-documented optimism in analysts’ target prices using unique analyst location data for 11,633 analysts located in 44 countries covering 17,353 firms around the world. We construct both ex ante and ex post optimism measures to explore the determinants of target price optimism. We find that target price optimism is positively associated with proxies for analysts’ conflicts of interest, but negatively associated with country-level institutional infrastructure as characterised by strong investor protection, effective legal enforcement and transparent financial environment. Our results highlight the importance of institutional infrastructure of a country in moderating biased analyst research.