When Analysts Talk, Do Institutional Investors Listen? Evidence from Target Price Changes and Institutional Trading

Using a sample of 7,240 US firms during the period 1999-2009, we find that institutional investors trade in the same direction as the consensus target price changes, even after we control for the changes in recommendations and earnings forecasts. Further analyses show that the effect of target price change on institutional trading is more pronounced for small firms and for firms followed by few analysts, and is limited to active institutional investors. Moreover, we find that the information content of target prices increases following a series of regulations in the early 2000s to better discipline the securities research industry. Our results provide further evidence on the informativeness of analyst research to investors.