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European Stock Markets and the ECB's Monetary Policy Surprises

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  • Martin T. Bohl
  • Pierre L. Siklos
  • David Sondermann

Abstract

This paper contributes to the literature measuring the response of stock markets to monetary policy actions. We analyse the reaction of European stock market returns to unexpected interest rate decisions by the European Central Bank (ECB). Endogeneity between interest rate changes and stock returns is taken into account using the identification through the heteroscedasticity approach. Relying on different methods to extract monetary policy shocks, we find a negative and significant relation between unexpected ECB decisions and European stock market performance. Moreover, monetary policy decisions of the ECB are well anticipated by the market, implying that the central bank successfully communicates its monetary policy. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 11 (2008)
Issue (Month): 2 (08)
Pages: 117-130

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Handle: RePEc:bla:intfin:v:11:y:2008:i:2:p:117-130

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Cited by:
  1. Murat Duran & Pinar Ozlu & Deren Unalmis, 2010. "TCMB Faiz Kararlarinin Hisse Senedi Piyasalari Uzerine Etkisi," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 10(2), pages 23-32.
  2. Bernd Hayo & Britta Niehof, 2011. "Identification Through Heteroscedasticity in a Multicountry and Multimarket Framework," MAGKS Papers on Economics 201124, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  3. Murat Duran & Gulserim Ozcan & Pinar Ozlu & Deren Unalmis, 2010. "Measuring the Impact of Monetary Policy on Asset Prices in Turkey (Turkiye’de Para Politikasinin Finansal Varlik Fiyatlari Uzerine Etkisi)," Working Papers 1017, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  4. Hoffmann, Andreas, 2013. "Did the Fed and ECB react asymmetrically with respect to asset market developments?," Journal of Policy Modeling, Elsevier, vol. 35(2), pages 197-211.
  5. Elshahat, A. & Parhizgari, Ali & Hong, Liang, 2012. "The information content of the Banking Regulatory Agencies and the Depository Credit Intermediation Institutions," Journal of Economics and Business, Elsevier, vol. 64(1), pages 90-104.
  6. Challe, Edouard & Giannitsarou, Chryssi, 2011. "Stock Prices and Monetary Policy Shocks: A General Equilibrium Approach," CEPR Discussion Papers 8387, C.E.P.R. Discussion Papers.
  7. Hoffmann, Andreas, 2009. "Fear of depression - Asymmetric monetary policy with respect to asset markets," MPRA Paper 17522, University Library of Munich, Germany.
  8. Küçükkocaoğlu, Güray & Ünalmış, Deren & Ünalmış, İbrahim, 2013. "How do banks' stock returns respond to monetary policy committee announcements in Turkey? Evidence from traditional versus new monetary policy episodes," Economic Modelling, Elsevier, vol. 35(C), pages 536-545.

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