Work

How do analyst recommendations on banks respond to monetary policy news? An application to the Eurozone

Year: 2024

Type: article

Abstract: We assess the extent to which stock analysts consider European Central Bank monetary policy decisions when formulating their investment recommendations on European banks from 2002 to 2020. To identify monetary policy shocks, we extract monetary policy factors from high-frequency rate movements surrounding monetary policy announcements. Our findings indicate that stock analysts are more concerned with non-standard (or unconventional) monetary policy measures than standard policy measures. We also demonstrate that analysts interpret restrictive (accommodative) monetary surprises as positive (negative) news for bank financial health, particularly during periods characterized by high levels of financial uncertainty. Finally, we emphasize that the reaction of stock recommendations to rate- and forward guidance-related decisions is primarily influenced by the implicit disclosure of information on the economic outlook by the ECB along with its monetary policy decision.

Source: Applied Economics

DOI: 10.1080/00036846.2024.2422110

Authors: Sophie Brana, Quentin Bro de Comères, Anne-Gaël Vaubourg

Institutions: Centre National de la Recherche Scientifique, Université de Bordeaux, Bordeaux Sciences Économiques, Central Bank of Ireland, Université de Poitiers

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: Conseil Régional Aquitaine

Award: G5610864532