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Assessing the impact of the ECB’s monetary policy on the stock markets: A sectoral view

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Author Info

  • Konstantin Kholodilin

    () (DIW Berlin, Germany)

  • Alberto Montagnoli

    () (University of Stirling, Stirling, UK)

  • Oreste Napolitano

    () (Parthenope University of Naples, Napoli, Italy)

  • Boriss Siliverstovs

    () (KOF Swiss Economic Institute, ETH Zurich, Switzerland)

Abstract

This paper analyzes the response of the European stock markets to the monetary policy shocks by the European Central Bank using the heteroskedasticity based approach of Rigobon (2003). We find that monetary policy tightening has a heterogeneous impact on the Euro Area sectors on the day the monetary policy is publicly announced. Furthermore, we provide statistical evidence against the use of the popular event study approach when assessing the impact of monetary policy shocks on the stock market as the maintained assumptions can be rejected for the aggregate stock market and for most of the sectoral stock market indexes.

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Bibliographic Info

Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 08-213.

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Length: 11 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:kof:wpskof:08-213

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Keywords: Monetary policy; Stock markets; ECB;

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  1. Michael Ehrmann & Marcel Fratzscher, 2004. "Taking stock: monetary policy transmission to equity markets," Working Paper Series 354, European Central Bank.
  2. Bomfim, Antulio N., 2003. "Pre-announcement effects, news effects, and volatility: Monetary policy and the stock market," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 133-151, January.
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Cited by:
  1. 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.
  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.

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