Dispersion in Analysts’ Target Prices and Stock Returns in the Korean Stock Market

This study examines the relationship between the dispersion in analysts' target prices and stock returns for firms listed on the KOSPI and KOSDAQ markets. We find that analyst target price dispersion is positively and significantly associated with next-month stock returns in panel regressions and Fama-MacBeth cross-sectional regressions, and this relation remains robust after controlling for a variety of firm characteristics. To explore the mechanism underlying this association, we divide the sample into subsamples based on firm size, volatility, turnover, and analyst coverage, and conduct the same analyses within each subsample. The results indicate that the positive relation between target price dispersion and returns is stronger for firms that are smaller, have lower volatility or lower turnover, and receive higher analyst coverage. Overall, our findings suggest that dispersion in analysts' target prices reflects uncertainty about firms' future value and contains additional information beyond traditional risk measures in environments with information frictions.