The objective of this thesis, while building upon previous research, was to determine whether the announcements of various asset purchase programmes by the ECB have an effect on corporate bond spreads over the period January 2015 to March 2021. Event study methodology following research of Neugebauer (2018) was used, where announcements of the various asset purchase programmes in the euro area were represented with a dummy variable equaling one in the month of an announcement and zero otherwise. Variables representing a selection of the transmission channels were also included. Additionally, control variables were added following suggestions of existing literature to limit the risk of endogeneity. In the end, OLS regressions were generated with the use of Stata.
The key finding of this research is that, while focusing on the effects of the announcements of asset purchase programmes on corporate bond spreads, evidence is found in favor of the workings of two transmission channels: the portfolio rebalancing channel and the exchange rate channel.
This is represented by the significance and (signs of) coefficients of the aggregate corporate bond holdings of the private sector (variable) and the Euro to US Dollar exchange rate (variable). This is in accordance with expectations and a growing body of literature on asset purchase programmes in the euro area. No evidence is found in favor of the signaling channel as the announcement dummy variable and the interaction term of the announcement dummy variable with the second lag of the stock price index comprising banks variable, did not have a significant effect on the stock price index comprising banks. Though the latter is known to be a strong channel for assets and bonds issued by the governments, it seems to be weak in working for corporate bonds in this research. Limitations of this research, by for instance using monthly data instead of daily data, could have had led to this interpretation. However, this could also be an indication that the working of the signaling channel are less present for corporate bonds compared to the workings of the portfolio rebalancing channel and the exchange rate channel. Similarly, results for the model without the inclusion of PEPP presented quite some variation in the results. Whether this is attributable to either the reduced number of observations and the limitations of the models or to the specific results of the PEPP, is also still open for question. Therefore, future research could focus on one, or both, of these areas.
In view of the importance of corporate bond spreads as indicator for future economic conditions and as only a limited amount of research is available on the topic of this thesis, the results and the suggestions for future research discussed in this paper may well be of interest for various organizations that are concerned with policy decisions and/ or are dealing with the aftermath of the COVID-19 crisis. For instance, the ECB and various national central banks will be interested in checking and confirming whether the responses to the COVID-19 crisis in the euro area have had a stabilizing effect on financial markets and to improve the responses for future use where necessary (Aguilar, Arce, Hurtado, Martínez-Martín, Nuño & Thomas, 2020). This requires extensive research into the effects and impact of, among others, asset purchase programmes on various financial indicators as studied in this paper. Obviously, in view of the limitations of this research, certain caution in applying these results should be exercised due to some highlighted contradictions and inconsistencies as presented in the results of this thesis. Nevertheless, the main conclusions could be very useful as a starting point for further research in the effectiveness of applied programmes by central and national banks.
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