Monetary policy announcements of the European Central Bank and the Federal Reserve System in 2008 - 2013: Impacts on CDS spreads and equity markets

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en Lehto, Eemeli 2014-10-09T08:07:55Z 2014-10-09T08:07:55Z 2014
dc.description.abstract OBJECTIVES OF THE STUDY: In this Thesis I study the immediate impacts of monetary policy announcements on credit spreads and equity prices by applying event study approach during time period from the beginning of 2008 until end of 2013. Main objective is to show comparison between the impacts as result of ECB's and the Fed's policy decisions. Emphasis in this Thesis is on differing unconventional monetary policy announcements between the two institutions. DATA AND METHODOLOGY: Data in this Thesis contains daily change observations for set of financial data for European and US corporate CDS spreads, equity markets and interest-rate variables for the time period from 1 January 2008 to 31 December 2013. Additionally I have sorted and selected the main monetary policy decision announcement events during the same time period. The sample of selected announcements includes 27 different events in case of the Fed and 26 events in case of ECB. Also 16 events related to European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF) are included. Analysis is primarily based on ordinary least square event study regressions. To further examine the differences in impacts by the Fed and ECB, I also quantify the sensitivity of corporate credit spreads and equity markets on the changes in the risk-free interest rates induced by the unconventional monetary policy announcements. FINDINGS OF THE STUDY: Despite the differences in the Fed's and the ECB's unconventional monetary policies, both the Fed's and ECB's unconventional policy announcements have approximately equivalent magnitude impact on credit spreads and equity prices in their respective monetary policy regions. ECB's expansionary unconventional announcements reduce on average the credit risk premium for European high yield corporates by 18 bps and for European investment grade corporates by 6 bps. European equity prices increase on average 1.5%. The Fed's expansionary unconventional policy announcements reduce on average the credit risk premium for US high yield corporates by 16 bps and for US investment grade corporates by 4 bps. US equity prices increase on average by 0.9%. These impacts of unconventional announcements recorded in this Thesis are comparable to impacts recorded in earlier event-studies on the Fed's unconventional policies and policy rate changes before the financial crisis. Further, I also find some indication of financial markets interpreting ECB's unconventional policy decisions more as economic shock whereas the Fed's unconventional policy announcements have some characteristics of monetary policy shock impacts trough the announcement induced changes in risk-free rates. en
dc.format.extent 91
dc.language.iso en en
dc.title Monetary policy announcements of the European Central Bank and the Federal Reserve System in 2008 - 2013: Impacts on CDS spreads and equity markets en
dc.type G2 Pro gradu, diplomityö fi Kauppakorkeakoulu fi School of Business en
dc.contributor.department Rahoituksen laitos fi
dc.contributor.department Department of Finance en
dc.subject.keyword ECB
dc.subject.keyword the FED
dc.subject.keyword monetary policy
dc.subject.keyword unconventional methods
dc.subject.keyword announcement impacts
dc.subject.keyword event study
dc.subject.keyword quantitative easing
dc.subject.keyword credit easing
dc.subject.keyword signalling
dc.subject.keyword portfolio balancing
dc.subject.keyword bank centric
dc.subject.keyword enhanced credit support
dc.subject.keyword LSAP
dc.subject.keyword market-based financing
dc.subject.keyword monetary policy shock
dc.subject.keyword economic shock
dc.identifier.urn URN:NBN:fi:aalto-201410102784
dc.type.dcmitype text en
dc.programme.major Finance en
dc.programme.major Rahoitus fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon rahoitus
dc.subject.helecon financing
dc.subject.helecon rahapolitiikka
dc.subject.helecon monetary policy
dc.subject.helecon Yhdysvallat
dc.subject.helecon United States
dc.subject.helecon keskuspankit
dc.subject.helecon central banks
dc.subject.helecon Eurooppa
dc.subject.helecon Europe
dc.subject.helecon osakemarkkinat
dc.subject.helecon stock markets
dc.subject.helecon arvopaperimarkkinat
dc.subject.helecon stock exchange markets
dc.ethesisid 13735 2014-09-02
dc.location P1 I

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