The performance of analyst recommendations in the banking sector: A case of Poland

Abstract

Purpose – The paper aims at empirical evaluation of the performance of the professional stock market analysts’ recommendations in the Polish banking sector. Design/methodology/approach – The employed research methods involve the analyses of structure and accuracy of the examined recommendations in terms of target prices. The examined sample covers 2,806 stock recommendations issued for 14 banks listed on the Warsaw Stock Exchange over the period 1999–2016. The performance of each recommendation was assessed over a time horizon of 180 days from its issuance through comparison with actual market prices of a given stock. Findings – Consistent with the evidence in the relevant literature the results of the study indicate that even in such complex and opaque industry as banking, the analyst recommendations should serve only as a supplementary source of information supporting the decision-making processes of the equity investors. In the specific context of the Polish banking sector the analyst recommendations performed moderately, with slightly more than 56% of them being able to correctly predict the prices of bank stocks within the 180 days time window since the issuance date. However, even if the exact target prices were often not reached, the recommendations seem useful as the indicators of the short-run price movements. Originality/value – The majority of empirical studies in the relevant literature examines the performance of analyst recommendations without taking into account the potential impact of industry-specific contextual factors. Additionally, these studies are focused mostly on developed capital markets, while the evidence for the emerging ones remains quite modest. Moreover, to date apparently no study has addressed this issue in the context of the Polish capital market. The present study attempts, therefore, to fill this gap.