Strong-Form Efficiency on the Toronto Stock Exchange: An Examination of Analyst Price Forecasts

Abstract

Strong-form efficiency on the Toronto Stock Exchange is examined by focusing on the stock price forecasts of brokerage-firm analysts who follow TSE firms. Two principal analyses are undertaken. First, there is considerable evidence in both the U.S. and U.K. that analysts possess valuable private information at the firm-specific level. This paper provides evidence that this finding is generalizable to Canadian analysts. Second, U.S. and U.K. studies generally have been based on a single-factor model (e.g., the CAPM). The choice of benchmarks (CAPM versus APT) has been shown to be important in a variety of contexts. We provide evidence that the choice of benchmark does not alter the fundamental conclusion that Canadian analysts possess valuable private information at the firm-specific level. Our findings have implications for accounting researchers, namely, the appropriateness of researchers to use CAPM in lieu of the computationally, more burdensome APT and the appropriateness of researchers to use Canadian analyst forecasts when a proxy is required for the (unobservable) market expectation.