European Stock Markets and the ECB's Monetary Policy Surprises
Abstract
This paper contributes to the literature measuring the response of stock markets to monetary policy actions. We analyse the reaction of European stock market returns to unexpected interest rate decisions by the European Central Bank (ECB). Endogeneity between interest rate changes and stock returns is taken into account using the identification through the heteroscedasticity approach. Relying on different methods to extract monetary policy shocks, we find a negative and significant relation between unexpected ECB decisions and European stock market performance. Moreover, monetary policy decisions of the ECB are well anticipated by the market, implying that the central bank successfully communicates its monetary policy.
Cite as
Bohl, M., Siklos, P., & Sondermann, D. (2008). European Stock Markets and the ECB's Monetary Policy Surprises. International Finance, 11(2), 117–130.Details
Publication type
Research article (journal)
Peer reviewed
Yes
Publication status
Published
Year
2008
Journal
International Finance
Volume
11
Issue
2
Start page
117
End page
130
Language
English
ISSN
1468-2362
DOI