Analyst attention revised expected returns
factor.formula
CTR = Rank(WTR) * Rank(C)
in:
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Concentration-Adjusted Target Return refers to the expected return factor after adjusting for analyst attention.
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The ranking value of the weighted target return in the cross section. WTR refers to the expected return calculated by the analyst's target price, and then weighted by a certain weight. This step aims to convert the original expected return into a relative ranking for cross-stock comparison and analysis, thereby eliminating differences in numerical scales. The weights can usually take into account factors such as the analyst's rating and the confidence level of the target price.
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The ranking value of the analyst coverage concentration factor in the cross section. The coverage factor C is usually measured by the number of analysts who have covered a specific stock in the past period of time, and analysts from the same institution are deduplicated to avoid repeated counting. This step also converts the absolute value of the coverage into a relative ranking for cross-stock comparison. The higher the Rank(C) value, the higher the coverage of the stock and the higher the analyst coverage.
factor.explanation
Analyst coverage corrected expected return is designed to capture the forecast bias that may be caused by emotional bias and research homogeneity when analysts predict future stock prices. The core logic is that when a stock is covered by a large number of analysts, due to research homogeneity, analysts' forecasts tend to be more consistent, and their forecasts are relatively less affected by personal emotions. On the contrary, if a stock has low analyst coverage, analysts' forecasts are more likely to reflect their personal emotions and opinions, so their forecast bias may be higher. This factor provides a more robust measure of expected return by combining weighted expected return and analyst coverage. By ranking these two factors and multiplying them, the analyst's emotional bias is corrected, making the final expected return more reasonable and reliable.