AD ALTA
JOURNAL OF INTERDISCIPLINARY RESEARCH
“this bias is fairly small” and the “approach tends to outperform”
with respect to the heteroscedasticity-based estimator for both
small and large sample sizes, adding, that “in general the event-
study methodology should be preferred”.
To examine short-term market reactions, i.e. effects of
announcements on the equity markets, we use standard event-
study methodology to determine excess returns (see e.g.
MacKinlay, 1997). Abnormal (excess) returns will be analysed
at the same time point (day) as announcement is released
1
using
average returns (Brown and Warner, 1985) calculated from
previous sixty days (Sosvilla-Rivero and Fernández-Fernández,
2015)
2
:
=
−�
(1)
�
=
1
60
∑
−1
−60
(2)
Where the
represents the excess return on the announcement
day (AD) of particular index, the
is the return of particular
index on the announcement day (calculated as the difference
between the closing prices on the announcement day and the
previous day, divided by the close price of the previous day –
expressed in percentage points), the
represents the average
return of particular index in the previous sixty days before the
announcement day (expressed in percentage points). For
purposes of examining the short-term QE information-related
effects on the equity markets, we consider the
(expressed in
percentage points) as the key indicator. This indicator provides
us with information how the daily return on index deviate on
particular day, after the announcement is made, from its average
performance during the previous sixty trading days. Even though
the persistency of these effects can be questioned, undoubtedly
we get solid information about the sentiment brought to the
market participants by the ECB, in order to find out if such a
policy is positive or negative impulse for the equities, which we
consider as a main advantage of this methodology.
Here we would like to point out, that despite event-study is
widely used among authors with respect to the QE (e.g. Henseler
and Rapp, 2018; Curcuru et al., 2018; Urbschat and Watzka,
2017; Bauer et al., 2014; Wright, 2012; Swanson, 2011; Gagnon
et al., 2011; Joyce et al., 2010; Gregova et al., 2020). Thornton
(2017) argues that the event-study approach with announcements
used as an events cannot provide statistically significant
information about persistence and durability of effects caused on
bond yields (or other assets) by those announcements, therefore
this approach cannot be used to examine effectiveness of the
whole QE in its complexity. We agree with Thornton (2017),
that persistence of such effects cannot be examined via this
methodology, nevertheless, from daily and intraday perspective
it provides valuable knowledge about possible changes of
“sentiment” of market participants.
For purposes of this research we used daily close prices of main
equity indices representing the Europe’s equity markets. As
pointed out by Kontonikas et al. (2013), the problem of
endogeneity should be less of a concern when daily data are used
within an event-study framework. Haitsma et al. (2016) adds,
that monetary policy is unlikely to be affected by changes in
asset returns on the same day, meaning that the likelihood that
results are contaminated by reverse causality going from the
equity prices to changes in the monetary policy is minimal (see
also Fratzscher et al., 2017). Furthermore, one-day windows are
unlikely to be contaminated by other pieces of news.
We are specifically interested in the aspects of using this
methodological approach as they pertain to determine whether
1
Announcements are released usually in the afternoon, while markets close several
hours later, which gives market participants enough time to absorb information
contained in particular announcement.
2
Sosvilla-Rivero & Fernández-Fernández (2015) uses previous six weeks (30 days) as
a timeframe for calculating average returns. We argue that doubling that time to
approximately one quarter (twelve weeks) provides more appropriate information with
respect to “average” returns.
information related to unconventional monetary policy (or the
QE), provided by monetary authority, has positive or negative
impact on equity markets via examining returns on benchmark
indices on announcement days.
Despite wide research done on the QE topic, we consider the
equity markets reactions to the QE related events/information
undiscovered robustly. In general, literature coverage is scarce as
Shah et al. (2018), Kiley (2014) or Rosa (2012), hence we find it
beneficial to examine properly the sentiment brought to the
markets by central banks’ announcements. Such empirical
analysis could provide us with valuable knowledge with respect
to establishing profitable positions, or, on the other hand help to
hedge against expected losses based on anticipated market
reactions.
Main input (besides daily close prices of particular indices) for
this analysis would be identification of the QE related
announcements. For this purpose, we examined content of each
monetary policy linked release from 2008 onwards from the
ECB. Such press releases, central bankers’ speeches or
conferences are held mostly in the afternoon, which gives
markets’ participants several hours to adjust, and price-in
announced information until the markets are closed.
For the EU, we used daily close prices of main equity indices as
representatives of the European equity markets (CAC, DAX,
Eurostoxx50, FTSEMIB, Stoxx600), while returns/changes were
calculated as percentage points
3
3
Returns on announcement days were removed from sample so average returns were
calculated without contamination of excess returns on announcement days.
. In the Europe, index CAC is a
free float market capitalization weighted index reflecting the
performance of the 40 largest and most actively traded shares
listed on Euronext Paris, DAX is a total return index of 30
selected German blue-chip stocks traded on the Frankfurt Stock
Exchange, Eurostoxx50 is leading blue-chip index for the
Eurozone, providing blue-chip representation of supersector
leaders in the region, covering 50 stocks from 11 Eurozone
countries, FTSEMIB consists of the 40 most liquid and
capitalized stocks listed on the Borsa Italiana and Stoxx600
represent 600 large companies in Europe, covering more than
90% of market cap in the Europe. Descriptive statistics of
indices used we present in Tab. 1:
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