ABSTRACT I use a novel decomposition to estimate information and bias components from the returns implied by analyst price targets and provide evidence that prices simultaneously under-react to information and over-react to bias. Price reactions to information are permanent, and prices drift in the direction of their initial reaction for up to 12 months. Price reactions to bias are transitory, and prices reverse their initial reaction after about three months. Price reactions are relatively efficient. Approximately 85 percent of the total price reaction to information occurs during price target announcement months. Market participants are able to mostly (but not fully) debias analyst-expected returns before incorporating them into prices, with the announcement-month reaction to bias being relatively weak at about 15 percent of its reaction to information. A trading strategy analysis implies that mispricing induced by bias is only about one-third of that implied by prior research. JEL Classifications: G12; G14; G40.

We derive lower and upper bounds on the conditional expected excess market return that are related to risk-neutral volatility, skewness, and kurtosis indexes. The bounds can be calculated in real time using a cross section of option prices. The bounds require a no-arbitrage assumption, but they do not depend on distributional assumptions about market returns or past observations. The bounds are highly volatile, positively skewed, and fat-tailed. They imply that the term structure of expected excess holding period returns is decreasing during turbulent times and increasing during normal times and that the expected excess market return is on average 5.2%.