Accuracy of Valuations in Stock Recommendations

Abstract

The purpose of the article. The purpose of the article is to assess the accuracy of equity recommendations issued by brokerage institutions on the Polish capital market. The study focuses on sell-side recommendations and aims to verify the hypothesis that stock exchange recommendations are characterised by low accuracy, leading to significant deviations between target and market prices.Methodology. The research was conducted on a unique dataset comprising 5,295 recommendations for 303 companies listed on the Warsaw Stock Exchange, covering the period from October 2005 to May 2023. The methodology is based on a static approach, evaluating the accuracy of each recommendation by comparing its target price with the actual market price on the expiration date. Statistical tests such as the one-sample t-test and chi-square test were used to validate the research hypotheses and determine the effect size.Results of the research. The results reveal that 71% of the recommendations demonstrated an unacceptable level of inaccuracy (defined as a deviation greater than 15%), while only 11% were deemed accurate. The average overvaluation reached 51.38%. These findings indicate that equity recommendations, while widely used by investors, may not be fully reliable as a basis for investment decisions due to systematic forecasting errors and behavioral biases among analysts.