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The impact of the ECB's conventional and unconventional monetary policies on stock markets

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  • Haitsma, Reinder
  • Unalmis, Deren
  • de Haan, Jakob

Abstract

Using an event study method, we examine how stock markets respond to the policies of the European Central Bank during 1999–2015. We use market prices of futures (government bonds) to identify surprises in (un)conventional monetary policy. Our results suggest that especially unconventional monetary policy surprises affect the EURO STOXX 50 index. We also find evidence for the credit channel, notably for unconventional monetary policy surprises. Our results also suggest that value and past loser stocks show a larger reaction to monetary policy surprises. These results are confirmed if identification of monetary policy surprises is based on the Rigobon–Sack heteroscedasticity approach.

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  • Haitsma, Reinder & Unalmis, Deren & de Haan, Jakob, 2016. "The impact of the ECB's conventional and unconventional monetary policies on stock markets," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 101-116.
    • Handle: RePEc:eee:jmacro:v:48:y:2016:i:c:p:101-116
    DOI: 10.1016/j.jmacro.2016.02.004
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    Cited by:

    1. Fausch, Jürg & Sigonius, Markus, 2018. "The impact of ECB monetary policy surprises on the German stock market," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 46-63.
    2. Chi Hyun Kim & Lars Other, 2019. "The Short-Run Effect of Monetary Policy Shocks on Credit Risk: An Analysis of the Euro Area," Discussion Papers of DIW Berlin 1781, DIW Berlin, German Institute for Economic Research.
    3. Fiorelli, Cristiana & Meliciani, Valentina, 2019. "Economic growth in the era of unconventional monetary instruments: A FAVAR approach," Journal of Macroeconomics, Elsevier, vol. 62(C).
    4. Pacicco, Fausto & Vena, Luigi & Venegoni, Andrea, 2019. "Market reactions to ECB policy innovations: A cross-country analysis," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 126-137.
    5. Hipòlit Torró, 2019. "The Response of European Energy Prices to ECB Monetary Policy," International Journal of Energy Economics and Policy, Econjournals, vol. 9(2), pages 1-9.
    6. Adam Elbourne & Kan Ji & Sem Duijndam, 2018. "The effects of unconventional monetary policy in the euro area," CPB Discussion Paper 371, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Shahida Perveen, Mustaghis-ur-Rahman, 2018. "Impact of Fiscal and Monetary Policies on Stock Market Performance: An Empirical Study of Pakistan Stock Exchange," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 3(2), pages 2-23, October.
    8. Helmut Lütkepohl & Aleksei Netšunajev, 2018. "The Relation between Monetary Policy and the Stock Market in Europe," Econometrics, MDPI, Open Access Journal, vol. 6(3), pages 1-1, August.
    9. Mnasri, Ayman & Nechi, Salem, 2016. "Impact of terrorist attacks on stock market volatility in emerging markets," Emerging Markets Review, Elsevier, vol. 28(C), pages 184-202.
    10. Nakabayashi, Masaki, 2017. "Contained crisis and socialized risk," Research in International Business and Finance, Elsevier, vol. 40(C), pages 231-241.
    11. Frederik Neugebauer, 2020. "ECB Announcements and Stock Market Volatility," WHU Working Paper Series - Economics Group 20-02, WHU - Otto Beisheim School of Management.
    12. Girardi, Daniele & Bowles, Samuel, 2018. "Institution shocks and economic outcomes: Allende's election, Pinochet's coup and the Santiago stock market," Journal of Development Economics, Elsevier, vol. 134(C), pages 16-27.
    13. Neugebauer, Frederik, 2019. "ECB Announcements and Stock Market Volatility," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203554, Verein für Socialpolitik / German Economic Association.
    14. De Rezende, Rafael B. & Ristiniemi, Annukka, 2018. "A shadow rate without a lower bound constraint," Working Paper Series 355, Sveriges Riksbank (Central Bank of Sweden).
    15. Ralf Fendel & Frederik Neugebauer, 2018. "Country-Specific Euro Area Government Bond Yield Reactions to ECB’s Non-Standard Monetary Policy Announcements," WHU Working Paper Series - Economics Group 18-02, WHU - Otto Beisheim School of Management.
    16. Jäger, Jannik & Grigoriadis, Theocharis, 2017. "The effectiveness of the ECB’s unconventional monetary policy: Comparative evidence from crisis and non-crisis Euro-area countries," Journal of International Money and Finance, Elsevier, vol. 78(C), pages 21-43.
    17. Tom Hudepohl & Ryan van Lamoen & Nander de Vette, 2019. "Quantitative easing and exuberance in stock markets: Evidence from the euro area," DNB Working Papers 660, Netherlands Central Bank, Research Department.
    18. Adam Elbourne & Kan Ji, 2019. "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?," CPB Discussion Paper 391, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Adam Elbourne & Kan Ji, 2019. "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?," CPB Discussion Paper 391.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    20. Wang, Ling, 2019. "Measuring the effects of unconventional monetary policy on MBS spreads: A comparative study," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 235-251.

    More about this item

    Keywords

    Monetary policy surprises; Stock prices; Event studies approach; Identification through heteroscedasticity;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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