XXVI Edition

14-15-16 December 2017"

The impact of ECBs conventional and unconventional monetary policies on European banks. An event study1

perdichizzi salvatore, Catholic University of Sacreat Heart - University of Bologna
Torluccio Giuseppe , University of Bologna
Onali Enrico, Aston Business School

Do unconventional monetary policy measures affect bank stock prices and its volatility? If yes, is the price and volatility reaction to this type of measures stronger or weaker than for conventional measures? This paper investigates how conventional and unconventional monetary policy announcements affect the returns of 11 European banking indices for the period 1999-2015 using an event-study methodology. We find that unexpected changes in the ECBs reference rate leads to a positive market reaction, and this effect is stronger during the sovereign debt crisis. We also find a positive reaction to announcements of unconventional monetary policy actions, especially for GIIPS countries. Moreover, unconventional monetary policies increase the volatility of GIIPS banking indexes. Finally, we find that unconventional monetary policies had a negative impact on the Greek banking equity return, on the contrary, they reduce the correlations across the Greek banking system with respect to the GIIPS (Ireland, Italy, Portugal and Spain), French and German banking systems, avoiding a possible spill-over effect inside the Eurozone. However, the market reaction to unconventional monetary policy measures is weaker than for conventional ones.

Area: Monetary Policy and Central Banking

Keywords: Banking,Conventional and Unconventional Monetary Policy, Interest rate, ECB

Paper file

University Network