When interpreting the control variables all crisis dummies are not significant, while the MSCI excluding Europe index is highly significant (1% level); a finding that matches the results of Haitsma et al. (2016).
With regard to the robustness checks, the FTSE 100 shows high significance concerning the unanticipated unconventional policy, as in the previous regression analyses. There is also some evidence of an association between the stock returns and the interaction terms regarding the unanticipated and anticipated conventional
monetary policy changes with the Subprime Global Crisis dummy. The significance of these interaction terms differs per ECB rate. Additionally, for the three market capitalisation subgroups of the STOXX 600 index the results are similar to those of the first main regression (Eq. (7)) concerning to EURO STOXX 50 index.
Regarding data collection, the popularity of the database DataStream/Eikon should be taken into account. Due to the database’s popularity it can be difficult to attain a timeslot. On the other hand, the ECB database was very accessible, as the key interest rates could be downloaded easily and the announcements dates and descriptions could be collected from the website. This collection did have to occur manually, which naturally costs some time. However, as Rogers et al. (2014) had already interpreted a large part, there was only a few years of data on the announcements left to collect and interpret.
This study follows the event study method of Kuttner (2001), which is followed by multiple other papers including Kontonikas et al. (2013) and Haitsma et al. (2016). Rigobon and Sack (2004), on the other hand, suggest the identification through heteroscedasticity approach. The different approaches result in mixed estimates, possibly due to the weaker assumptions the latter approach relies on.
However, due to these mixed results it is difficult to draw definite conclusions.
It is evident that the strongest association in this study is that of the unconventional monetary policy, which is significant in all of the regression analyses. Therefore, the introduction of unconventional monetary policy on 22-08-2007 has had a significantly negative effect on stock returns, based on the stock returns studied in this paper. This results in the relatively high probability of unconventional monetary policy being a useful tool. However, the effect of conventional policy remains uncertain.
Finally, in addition to examining this relationship, it would have been
interesting to also examine the underlying reasoning for these market reactions. While
both Bernanke and Kuttner (2005) and Fausch and Sigonius (2018) have studied the underlying causes, this is still a relatively unexplored research field.
Bernanke and Kuttner (2005) find the reaction of stock prices in relation to US monetary policy surprises is mostly provoked by expected excess returns. Fausch and Sigonius (2018) find that these unanticipated monetary policy changes gives response to the stock market via news about higher expected excess returns and lower future dividends when looking at Germany.
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Table A.1
Agenda of Press Releases on Unconventional Policy Changes
Date Press release on unconventional policy change Unconventional Conventional
22-08-2007 Announcement Supplementary Long-Term Refinancing Operation (LTRO) (three-month)
Yes No
23-08-2007 Allotment Supplementary LTRO (three-month) Yes No
28-03-2008 Supplementary six-month LTROs and continuation of three-month LTRO Yes No
07-05-2009 Governing Council (GC) meeting 12-month LTROs and Covered Bond Purchase Programme (CBPP)
Yes Yes
04-06-2009 Details released on CBPP Yes No
03-12-2009 Adjustments to LTROs Yes No
04-03-2010 Adjustments to LTROs Yes No
10-05-2010 Securities Market Programme (SMP) and adjustments to LTROs Yes No
Date Press release on unconventional policy change Unconventional Conventional
03-03-2011 Fixed-Rate Full Allotment (FRFA) extended Yes No
04-08-2011 SMP (Spain and Italy) Yes No
06-10-2011 Second Covered Bond Purchase Programme (CBPP2) Yes No
08-12-2011 GC meeting and 36-month LTROs Yes Yes
09-02-2012 Approvals of 7 National Central Banks (NCBs) for Credit Claims Criteria Yes No
28-02-2012 Second 36-month LTRO results Yes No
26-07-2012 ‘Whatever it takes’ speech in London Yes No
02-08-2012 Outright Monetary Transactions (OMT) Yes No
06-09-2012 Details released on OMT Yes No
05-06-2014 Announcement Targeted Longer-Term Refinancing Operations (TLTROs) and preparation of outright purchases of Asset-Backed Securities (ABS)
Yes Yes
03-07-2014 Details released on TLTROs Yes No
Date Press release on unconventional policy change Unconventional Conventional
29-07-2014 Legal details released on TLTROs Yes No
02-10-2014 Details released on ABS and CBPP3 Yes No
22-01-2015 Announcement Expanded Asset Purchase Programme (APP) and changes in interest rate TLTROs
Yes No
23-09-2015 Adjustments to purchase process in ABS programme Yes No
09-11-2015 Adjustments to Public Sector Purchase Programme (PSPP) Yes No
10-03-2016 Announcement new series of Targeted Longer-Term Refinancing Operations (TLTRO II) and changes to Asset Purchase Programme including addition of Corporate Sector Purchase Programme (CSPP)
Yes Yes
21-04-2016 Details released on CSPP Yes No
03-05-2016 Legal details released on TLTRO II Yes No
02-06-2016 Details released on CSPP Yes No
Date Press release on unconventional policy change Unconventional Conventional
08-12-2016 Adjustments to APP and PSPP Yes No
15-12-2016 Adjustments to purchase process in ABS Purchase Programme (ABSPP) Yes No
26-10-2017 Announcement continuation and changes in APP Yes No
14-06-2018 Announcement continuation and changes in APP Yes No
13-12-2018 Announcement end of APP and decision on technical parameters for the reinvestment of APP
Yes No
07-03-2019 Announcement new series of Targeted Longer-Term Refinancing Operations (TLTRO III)
Yes No
06-06-2019 Details released on TLTRO III Yes No
29-07-2019 Legal details released on TLTRO III Yes No
12-09-2019 Announcement changes to TLTRO III, restart of APP and introduction of two-tier system for reserve remuneration
Yes Yes
Date Press release on unconventional policy change Unconventional Conventional 12-03-2020 Additional LTROs, changes in TLTRO III and additional net asset purchases Yes No
18-03-2020 Announcement Pandemic Emergency Purchase Programme (PEPP) Yes No
07-04-2020 Announcement package of temporary collateral easing measures Yes No
22-04-2020 Expansion of collateral easing measures Yes No
30-04-2020 Announcement Pandemic Emergency Longer-Term Refinancing Operations (PELTROs), easing of TLTRO III and continuation of PEPP and APP
Yes No
04-06-2020 Expansion of PEPP Yes No
25-06-2020 Announcement Eurosystem repo facility for central banks (EUREP) Yes No
22-09-2020 Sustainability-linked bonds accepted as collateral Yes No
10-12-2020 Extension of PEPP, APP, PETLROs, EUREP and easing of TLTRO III Yes No
Note. Unconventional represents an unconventional monetary policy change when ‘Yes’ is given. Conventional represents a conventional monetary policy change when ‘Yes’ is given. Source: Rogers et al. (2014) and press releases of the ECB.
Source: The ECB
The ECB’s key interest rates
Change in Rate Deposit Facility Marginal Lending Facility Main Refinancing Operations
-1.00% 1 0 0
-0.75% 1 1 1
-0.50% 7 10 8
-0.35% 0 1 0
-0.25% 7 8 10
-0.10% 5 1 2
-0.05% 0 1 1
0.00% 5038 5038 5038
0.25% 11 11 11
0.50% 1 0 0
Variable (1) (2) (3) (4) (5) (6)
(1) ∆𝑅𝑡 1.0000
(2) ∆𝑅𝑡𝑀𝑆𝐶𝐼 𝑒𝑥 𝐸𝑈𝑅𝑂 0.7426 1.0000
(3) FTSE Returns 0.8827 0.7569 1.0000
(4) Small Cap Returns 0.9019 0.7269 0.8395 1.0000
(5) Mid Cap Returns 0.9234 0.7617 0.9063 0.9640 1.0000
(6) Large Cap Returns 0.9976 0.7516 0.8891 0.9200 0.9402 1.0000
Source: DataStream.
Table A.4
Correlation Matrix of Conventional Policies
Variable (1) (2) (3) (4)
(1) ∆𝑟𝑡𝐴𝐶,𝐷𝐹 1.0000
(2) ∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹 0.9995 1.0000
(3) ∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 0.9998 0.9998 1.0000
(4) ∆𝑟𝑡𝑈𝐶 -0.9991 -0.9992 -0.9993 1.0000
Source: The ECB.
Dependent Variable: EUROS STOXX’s Small Cap
(1) (2) (3)
DF MLF MRO
∆𝑟𝑡𝑈𝐶 0.0004 0.0032 0.0014
(0.0076) (0.0075) (0.0075)
∆𝑠𝑝𝑟𝑒𝑎𝑑𝑡 -0.0373*** -0.0373*** -0.0373***
(0.0030) (0.0030) (0.0030)
Subprime Global Crisis Dummy -0.0001 -0.0002 -0.0002
(0.0004) (0.0004) (0.0004)
Euro Crisis Dummy -0.0003 -0.0003 -0.0003
(0.0003) (0.0003) (0.0003)
Covid Dummy 0.0002 0.0002 0.0002
(0.0006) (0.0006) (0.0006)
∆𝑟𝑡𝑈𝐶 X Subprime Global Crisis 0.0045 -0.0097 -0.0060
(0.0103) (0.0134) (0.0098)
∆𝑟𝑡𝑈𝐶 X Euro Crisis -0.0051 -0.0118 -0.0088
(0.0194) (0.0126) (0.0168)
∆𝑟𝑡𝑈𝐶 X Covid 0.0000 0.0000 0.0000
(0.0014) (0.0014) (0.0014)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 0.0070
(0.0076)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 X Subprime Global Crisis
0.0047
(0.0103)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 X Euro Crisis -0.0052 (0.0194)
∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹 0.0098
(0.0075)
Dependent Variable: EUROS STOXX’s Small Cap
(1) (2) (3)
DF MLF MRO
∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹 X Subprime Global Crisis
-0.0096
(0.0134)
∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹 X Euro Crisis -0.0119
(0.0126)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 0.0080
(0.0075)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 X Subprime Global Crisis
-0.0059
(0.0098)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 X Euro Crisis -0.0089
∆𝑅𝑡𝑀𝑆𝐶𝐼 𝑒𝑥 𝐸𝑈𝑅𝑂 0.8162***
(0.0215)
0.8162***
(0.0215)
(0.0168) 0.8160***
(0.0216)
Constant 0.0002 0.0002 0.0002
(0.0001) (0.0001) (0.0001)
Observations 4,968 4,968 4,968
R-squared 0.6887 0.6884 0.6883
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Note. This table reports the empirical link between the EURO STOXX Small Cap's close-to-close returns and the (un)anticipated (un)conventional monetary policy changes as well as interaction terms with multiple crisis periods and control variables including the crisis dummies and the MSCI ex Europe close-to-close returns. The close-to-close return of the EURO STOXX Small Cap is the dependent variable. ∆𝑟𝑡𝑈𝐶 represents the unanticipated interest rate change through conventional monetary policy; the change in future spot rates is used for this. ∆𝑠𝑝𝑟𝑒𝑎𝑑𝑡 represents the spread between the 10-year bond yields of Italy and Germany, respectively. ∆𝑟𝑡𝐴𝐶,𝐷𝐹 represents the anticipated interest rate change through conventional monetary policy regarding the deposit facility rate.
∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹represents the anticipated interest rate change through conventional monetary policy regarding the marginal lending facility rate. ∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 represents the anticipated interest rate change through conventional monetary policy regarding the main refinancing rate.
Table A.6
Alternative Full Model Regression Analysis: Full Mid Cap
Dependent Variable: EUROS STOXX’s Mid Cap
(1) (2) (3)
DF MLF MRO
∆𝑟𝑡𝑈𝐶 -0.0000 0.0015 0.0009
(0.0096) (0.0089) (0.0094)
∆𝑠𝑝𝑟𝑒𝑎𝑑𝑡 -0.0294*** -0.0295*** -0.0295***
(0.0025) (0.0025) (0.0026) Subprime Global Crisis Dummy -0.0001 -0.0001 -0.0001
(0.0004) (0.0004) (0.0004)
Euro Crisis Dummy -0.0000 -0.0000 -0.0000
(0.0003) (0.0003) (0.0003)
Covid Dummy 0.0000 0.0000 0.0000
(0.0006) (0.0006) (0.0006)
∆𝑟𝑡𝑈𝐶 X Subprime Global Crisis 0.0112 -0.0011 0.0045 (0.0111) (0.0134) (0.0107)
∆𝑟𝑡𝑈𝐶 X Euro Crisis 0.0004 -0.0043 -0.0021
(0.0196) (0.0131) (0.0171)
∆𝑟𝑡𝑈𝐶 X Covid -0.0015 -0.0015 -0.0015
(0.0011) (0.0011) (0.0011)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 0.0056
(0.0096)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 X Subprime Global Crisis
0.0115
(0.0112)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 X Euro Crisis -0.0002 (0.0196)
∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹 0.0071
(0.0089)
Dependent Variable: EUROS STOXX’s Mid Cap
(1) (2) (3)
DF MLF MRO
∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹 X Subprime Global Crisis
-0.0008
(0.0134)
∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹 X Euro Crisis -0.0048
(0.0131)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 0.0066
(0.0095)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 X Subprime Global Crisis
0.0048
(0.0107)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 X Euro Crisis -0.0026
(0.0171)
∆𝑅𝑡𝑀𝑆𝐶𝐼 𝑒𝑥 𝐸𝑈𝑅𝑂 0.8735*** 0.8725*** 0.8723***
(0.0212) (0.0213) (0.0214)
Constant 0.0002 0.0002 0.0002
(0.0001) (0.0001) (0.0001)
Observations 4,968 4,968 4,968
R-squared 0.6957 0.6949 0.6951
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Note. This table reports the empirical link between the EURO STOXX Mid Cap's close-to-close returns and the (un)anticipated (un)conventional monetary policy changes as well as interaction terms with multiple crisis periods and control variables including the crisis dummies and the MSCI ex Europe close-to-close returns. The close-to-close return of the EURO STOXX Mid Cap is the dependent variable. ∆𝑟𝑡𝑈𝐶 represents the unanticipated interest rate change through conventional monetary policy;
the change in future spot rates is used for this. ∆𝑠𝑝𝑟𝑒𝑎𝑑𝑡 represents the spread between the 10-year bond yields of Italy and Germany, respectively. ∆𝑟𝑡𝐴𝐶,𝐷𝐹 represents the anticipated interest rate change through conventional monetary policy regarding the deposit facility rate. ∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹represents the anticipated interest rate change through conventional monetary policy regarding the marginal lending facility rate. ∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 represents the anticipated interest rate change through conventional monetary policy regarding the main refinancing rate.
Table A.7
Alternative Full Model Regression Analysis: Full Small Cap
Dependent Variable: EUROS STOXX’s Large Cap
(1) (2) (3)
DF MLF MRO
∆𝑟𝑡𝑈𝐶 -0.0007 0.0003 -0.0002
(0.0083) (0.0077) (0.0081)
∆𝑠𝑝𝑟𝑒𝑎𝑑𝑡 -0.0380*** -0.0380*** -0.0380***
(0.0027) (0.0027) (0.0027) Subprime Global Crisis Dummy 0.0000 -0.0000 -0.0000
(0.0004) (0.0004) (0.0004)
Euro Crisis Dummy -0.0000 -0.0000 -0.0000
(0.0003) (0.0003) (0.0003)
Covid Dummy -0.0001 -0.0001 -0.0001
(0.0006) (0.0006) (0.0006)
∆𝑟𝑡𝑈𝐶 X Subprime Global Crisis 0.0128 -0.0013 0.0020 (0.0100) (0.0120) (0.0110)
∆𝑟𝑡𝑈𝐶 X Euro Crisis -0.0195 -0.0140 -0.0175
(0.0211) (0.0137) (0.0182)
∆𝑟𝑡𝑈𝐶 X Covid -0.0011 -0.0011 -0.0011
(0.0013) (0.0013) (0.0013)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 0.0040
(0.0083)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 X Subprime Global Crisis
0.0147
(0.0100)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 X Euro Crisis -0.0177 (0.0212)
∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹 0.0051
(0.0077)