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

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.