To test for robustness, additional regression analyses will be performed with related dependent variables. The additional dependent variables include the Financial Times Stock Exchange 100 index (FTSE 100) and the STOXX Europe 600. The latter is subdivided into three sections based on their market capitalisation, resulting in the EURO STOXX Small Cap, Mid Cap and Large Cap, each containing 200
components. A correlation matrix of these additional dependent variables with the EURO STOXX 50 index and the MSCI ex Europe index can be seen in Table A.3 in the Appendix.
All additional data was collected from DataStream, which led to a minor limitation. DataStream allows this data to be downloaded up until 20 years prior. Due to data collection taking place in 16-06-2021, data was collected from 16-06-2001 – 01-05-2021 (versus the main study 01-05-2001 – 01-05-2021). However, this effect is expected to be negligible as the difference is very minor. The number of observations is now 4,968 rather than the 5,071 observations before.
Table 3.1 shows the descriptive statistics of the four additional dependent variables. For all four the variables, both the mean and median have a value of zero. It may be observed that all values of the statistics are very similar, which is a logical consequence of the high correlation between the variables (Table A.3)
First, a regression analysis is done with regard to the FTSE 100 as dependent variable.
This regression analysis is done, as before, with respect to all three key interest rate of the ECB. The results of the estimates can be seen in Table 3.2.
Few things differ from the previous regression, which concerned the EURO STOXX 50 as dependent variable. The estimates of the unanticipated unconventional variable ∆𝑠𝑝𝑟𝑒𝑎𝑑𝑡 and the control variable ∆𝑅𝑡𝑀𝑆𝐶𝐼 𝑒𝑥 𝐸𝑈𝑅𝑂 are both still significant at a level of 1%; this corresponds to the preceding results. However, when looking at column (1), regarding the DF rate, both the estimates of the unanticipated and the anticipated conventional monetary policy changes interacted with the Subprime Global Crisis dummy are significant at a 1% level and have a positive value. For the MLF rate, column (2), none of the other variables have significant estimates with a maximum level of 10%. For the MRO rate, column (3), the same is true as with the
Variable Mean Median SD Min
Quantiles
25th percentile 75th percentile Max Obs
FTSE 100 0.000 0.000 0.014 -0.126 -0.006 0.007 0.118 4,968
EURO STOXX Small 0.000 0.000 0.014 -0.119 -0.006 0.007 0.099 4,968
EURO STOXX Mid 0.000 0.000 0.013 -0.127 -0.006 0.007 0.096 4,968
EURO STOXX Large 0.000 0.000 0.015 -0.130 -0.007 0.008 0.123 4,968
Note. This table gives an overview of all the additional dependent variables. SD represents standard deviation. FTSE 100 Returns represents the FTSE’s close-to-close return.
EURO STOXX Small represents the EURO STOXX's small cap close-to-close return. EURO STOXX Mid represents the EURO STOXX's mid cap close-to-close return.
EURO STOXX Large represents the EURO STOXX's large cap close-to-close return.
Dependent Variable: FTSE 100 Returns
(1) (2) (3)
DF MLF MRO
∆𝑟𝑡𝑈𝐶 -0.0005 0.0010 0.0012
(0.0078) (0.0072) (0.0077)
∆𝑠𝑝𝑟𝑒𝑎𝑑𝑡 -0.0195*** -0.0196*** -0.0196***
(0.0023) (0.0023) (0.0023)
Subprime Global Crisis Dummy 0.0003 0.0002 0.0003
(0.0005) (0.0005) (0.0005)
Euro Crisis Dummy 0.0002 0.0002 0.0002
(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 0.0257*** 0.0143 0.0220**
(0.0087) (0.0117) (0.0095)
∆𝑟𝑡𝑈𝐶 X Euro Crisis 0.0043 0.0013 0.0024
(0.0149) (0.0101) (0.0130)
∆𝑟𝑡𝑈𝐶 X Covid -0.0014 -0.0014 -0.0014
(0.0013) (0.0013) (0.0013)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 0.0029
(0.0078)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 X Subprime Global Crisis 0.0261***
(0.0088)
∆𝑟𝑡𝐴𝐶,𝐷𝐹 X Euro Crisis 0.0024 (0.0149)
∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹 0.0044
(0.0072)
∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹 X Subprime Global Crisis 0.0146 (0.0117)
Dependent Variable: FTSE 100 Returns
(1) (2) (3)
DF MLF MRO
∆𝑟𝑡𝐴𝐶,𝑀𝐿𝐹 X Euro Crisis -0.0006
(0.0101)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 0.0046
(0.0077)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 X Subprime Global Crisis
0.0224**
(0.0095)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 X Euro Crisis 0.0004
∆𝑅𝑡𝑀𝑆𝐶𝐼 𝑒𝑥 𝐸𝑈𝑅𝑂 0.9504***
(0.0260)
0.9476***
(0.0262)
(0.0131) 0.9475***
(0.0262)
Constant -0.0001 -0.0001 -0.0001
(0.0001) (0.0001) (0.0001)
Observations 4,968 4,968 4,968
R-squared 0.6120 0.6103 0.6110
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Note. This table reports the empirical link between the FTSE'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-to-close-to-close return of the FTSE 100 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.
DF rate, except the estimates have a 5% level of significance rather than 1%.
The estimate of the unanticipated unconventional variable coefficient is approximately -0.02% for all three rates, which is half of the estimate of the
coefficient in the first regression. Although the value is small, it being significant and negative is in line with the expectation.
For the significance of the two interaction terms with the Subprime Global Crisis with the DF and MRO rate, it is important to note that it is the interaction term that is significant rather than the individual variable. For these two rates it can
therefore be stated that during the Subprime Global Crisis, both the conventional monetary policy changes had a small positive association with the stock index return of the FTSE 100, at approximately 0.02%.
Next regression analyses are done on the different STOXX’s indices, which are subdivided by market capitalisation. As aforementioned, Haitsma et al. (2016) state the ECB’s main refinancing operations as the most important conventional monetary policy. This is the reasoning for displaying the Small Cap, Mid Cap and Large Cap only with respect to the MRO rate in Table 3.3. In the Appendix, all three regressions on the different capitalisation subgroups can be observed with regard to all three key interest rates (Table A.5, Table A.6 and Table A.7)
The results in Table 3.3 show great similarities with the results of the first regression (Table 2.2). Again, only the estimates of both the unanticipated unconventional variable ∆𝑠𝑝𝑟𝑒𝑎𝑑𝑡 and the control variable ∆𝑅𝑡𝑀𝑆𝐶𝐼 𝑒𝑥 𝐸𝑈𝑅𝑂 are significant at a 1%
level. The estimates vary little between the different subgroups with values of -0.0373%, -0.0295% and -0.0380% for the Small Cap, Mid Cap and Large Cap respectively, though all three are in line with the previous estimate results and the expectation.
Table 3.3
Alternative Full Model Regression Analysis: EURO STOXX Caps
Dependent Variable: Market Cap sorted Returns
(1) (2) (3)
Small Cap Mid Cap Large Cap
∆𝑟𝑡𝑈𝐶 0.0014 0.0009 -0.0002
(0.0075) (0.0094) (0.0081)
∆𝑠𝑝𝑟𝑒𝑎𝑑𝑡 -0.0373*** -0.0295*** -0.0380***
(0.0030) (0.0026) (0.0027) Subprime Global Crisis Dummy -0.0002 -0.0001 -0.0000 (0.0004) (0.0004) (0.0004)
Euro Crisis Dummy -0.0003 -0.0000 -0.0000
(0.0003) (0.0003) (0.0003)
Covid Dummy 0.0002 0.0000 -0.0001
(0.0006) (0.0006) (0.0006)
∆𝑟𝑡𝑈𝐶 X Subprime Global Crisis -0.0060 0.0045 0.0020 (0.0098) (0.0107) (0.0110)
∆𝑟𝑡𝑈𝐶 X Euro Crisis -0.0088 -0.0021 -0.0175
(0.0168) (0.0171) (0.0182)
∆𝑟𝑡𝑈𝐶 X Covid 0.0000 -0.0015 -0.0011
(0.0014) (0.0011) (0.0013)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 0.0080 0.0066 0.0046
(0.0075) (0.0095) (0.0081)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 X Subprime Global Crisis
-0.0059 0.0048 0.0038
(0.0098) (0.0107) (0.0110)
∆𝑟𝑡𝐴𝐶,𝑀𝑅𝑂 X Euro Crisis -0.0089 -0.0026 -0.0157 (0.0168) (0.0171) (0.0182)
∆𝑅𝑡𝑀𝑆𝐶𝐼 𝑒𝑥 𝐸𝑈𝑅𝑂 0.8160*** 0.8723*** 0.9761***
(0.0216) (0.0214) (0.0268)
Dependent Variable: Market Cap sorted Returns
(1) (2) (3)
Small Cap Mid Cap Large Cap
Constant 0.0002 0.0002 0.0000
(0.0001) (0.0001) (0.0002)
Observations 4,968 4,968 4,968
R-squared 0.6883 0.6951 0.6696
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’s small, mid and large capitalisation companies’ 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 returns of the EURO STOXX’s Small, Mid and Large Caps are the dependent variables. ∆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,𝑀𝑅𝑂 represents the anticipated interest rate change through conventional monetary policy regarding the main refinancing rate.