The impact of the ECB’s asset purchase programme on euro area equities

Abstract

We study the announcement effects of the ECB’s asset purchase programme (APP) on core and peripheral euro area equity indices and sectors, using a data set for June 2014 – March 2018. Using an event study with a one-day window, our results show that those effects are statistically relevant and have the expected direction. A simultaneous one-standard deviation change in both policy surprise measures, which we considered, translates into a higher return of close to +1% on average, when surprises are more expansionary than expected. Comparatively, when surprises are more contractionary than expected, the returns are lower by less than −0.5% on average. This asymmetric reaction to policy surprises is statistically significant, and we confirm previous findings about the non-linearity of asset price responses. We are, to the best of our knowledge, the first to empirically identify and quantify the impact of two simultaneous but different quantitative easing (QE) factors: one that is related to overall stimulus and the other one that may differentially affect equity markets. Finally, we conclude that effects of the ECB’s APP are mostly derived from the latter QE factor—a ‘save the euro’ QE factor.