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http://dx.doi.org/10.11627/jkise.2020.43.4.229

Optimization of Investment Decision Making by Using Analysts' Target Prices  

Cho, Su-Ji (School of Business Administration, Dankook University)
Kim, Heung-Kyu (School of Business Administration, Dankook University)
Lee, Ki-Kwang (School of Business Administration, Dankook University)
Publication Information
Journal of Korean Society of Industrial and Systems Engineering / v.43, no.4, 2020 , pp. 229-235 More about this Journal
Abstract
Investors aim to maximize the return rate for their own investment, utilizing various information as possible as they can access. However those investors, especially individual investors, have limitations of interpretation of the domain-specific information or even the acquisition of the information itself. Thus, individual investors tend to make decision affectively and frequently, which may cause a loss in returns. This study aims to analyze analysts' target price and to suggest the strategy that could maximize individual's return rate. Most previous literature revealed that the optimistic bias exists in the analysts' target price and it is also confirmed in this study. In this context, this study suggests the upper limit of target rate of returns and the optimal value named 'alpha(α)' which performs the adjustment of proposed target rate to maximize excess earning returns eventually. To achieve this goal, this study developed an optimization problem using linear programming. Specifically, when the analysts' proposed target rate exceeds 30%, it could be adjusted to the extent of 59% of its own target rate. As apply this strategy, the investors could achieve 1.2% of excess earning rate on average. The result of this study has significance in that the individual investors could utilize analysts' target price practically.
Keywords
Target Price; Information Value; Optimization; Decision Making;
Citations & Related Records
Times Cited By KSCI : 2  (Citation Analysis)
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