Impact of European monetary policy on bank equity prices

• Autor(a) principal: Almeida, João Guilherme de
• Data de Publicação: 2017
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/15951
• topic: Monetary policy; ECB; Financial markets; Share market; Política monetária; Mercado financeiro; Mercado de ações; BCE Banco Central Europeu

The impact of monetary policy on financial markets has been the subject of much discussion and change in recent years. Central banks enact monetary policy which affects markets through several transmission channels, with commercial banks serving as the main agent. These channels have evolved in the past decade, with more relevance being given to unexpected or surprise announcements regarding monetary policy. This dissertation proves the existence of a significant relationship between unexpected European monetary policy and bank equities, by regressing the historic stock prices for six large European banks as a function of three separate variables representative of surprise monetary policy. These variables have been adapted as to reflect their daily variation, only on days of ECB policy announcements, as per official calendars, and consist of the 1-Month EONIA Swap rates, the 3-Month EURIBOR Futures and the spread between 2-Year German Government Bond yields and the 1-Month EONIA Swap rates. Main findings show that, while contractions in monetary policy produced significant increases in bank share market prices for all banks under scope, at some point in time before, during or after the financial crisis, results vary greatly by bank, with some banks seeing their shares severely impacted by unexpected changes in policy, while others are only slightly impacted. Temporal-based analysis reveal that the overall impact of unexpected policy on bank share price lowers considerably after the end of the financial crisis, reflecting new-era tendencies for transparency in central bank communication as well as bank’s craving for financial structure and stability.