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

Sophie Brana, Quentin Bro de Comères () and Anne-Gaël Vaubourg ()
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Sophie Brana: BSE - Bordeaux sciences économiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Quentin Bro de Comères: UP - Université de Poitiers = University of Poitiers, Central Bank of Ireland
Anne-Gaël Vaubourg: UP - Université de Poitiers = University of Poitiers

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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.

Keywords: Monetary policy; Stock analysts; Signaling channel; Local projections; European Central Bank (search for similar items in EconPapers)
Date: 2024-11-08
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Published in Applied Economics, 2024, pp.1-18. ⟨10.1080/00036846.2024.2422110⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04873146

DOI: 10.1080/00036846.2024.2422110

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