Analyst decision methods in stock price forecasting in the emerging capital market of Sri Lanka

Abstract

Purpose – This study aims to investigate whether the decision-making methods of sell-side stock analysts (analysts) influenced their stock price forecasting. In emerging capital markets, stock price forecasting critically depends on cognitive approaches to intellectual capital decision-making, yet these approaches remain poorly understood. Design/methodology/approach – The study designed and conducted four experiments. Each experiment had three firms with brands as the intangible asset: Firm 1 with an internally generated brand, Firm 2 with an acquired brand and Firm 3 with an internally generated and acquired brand. Each firm generated equal earnings and operating cash flows. The four experiments differed in additional information, which can distract analysts from stock price forecasting. In total, 26 analysts representing the stock analysts' cohort took part and forecasted stock prices for 3 forecast years. Findings – The results showed analysts used the nontechnical method across all four experiments, and the additional capital market financial ratio information provided did not distract them from their preferred selection in stock price forecasts across three forecast years. Analysts' stock price forecasts remained unaffected by sufficient earnings and cash flow information, regardless of brand classification as internally generated or acquired. Originality/value – Findings contribute to understanding stock analysts’ preferred decision-making methods and the importance of transparent, intangible asset values in an emerging market setting in Sri Lanka.