Analyst consensus in the Eurozone stock markets

Abstract

The goal of this article is to specify the role of financial analysts’ consensus in stock markets, specifically, the Eurostoxx Market, from January 2002 to December 2009. Financial analysts issue reports about companies quoted on the stock market. For each company and for a given time period, each report contains an estimate of its future earnings per share and dividends, its target price for the next twelve months and an investment recommendation such as ‘buy’, ‘sell’, or ‘hold’. Some firms collect these reports to calculate financial analysts’ consensus estimates. This article concludes that financial analysts’ consensus perform several functions: announcing in advance unexpected price changes (‘surprises’) through the target price, confirming previous estimations through revisions, and reflecting analysts’ convictions through the interpretation of their estimates. This role is modest but statistically significant in this market.