QUANTITATIVE EASING EFFECTS ON EQUITY MARKETS – EVENT STUDY EVIDENCE FROM THE US


Finance

QUANTITATIVE EASING EFFECTS ON EQUITY MARKETS – EVENT STUDY EVIDENCE FROM THE US

After financial crisis in 2008, both financial and non-financial institutions, governments and monetary authorities as regulators faced great challenges in overcoming recent depression. Although different market participants in different fields reacted and accommodated in their own ways, they relied on monetary authorities more than they did before crisis. Monetary authorities were in position to deliver policies accommodative enough to stimulate economy, or at least reduce damage cumulated during crisis period. From our point of view, first step was pushing interest rates near zero level or lower in order to loosen borrowing conditions. But, on the other hand, monetary authorities approached to changes in legislation in order to prevent situation that caused crisis in the first place. In other words, meeting requirements for getting access to capital become stricter.
Jméno a příjmení autora:

Leoš Šafár, Marianna Siničáková

Rok:
2019
Ročník:
22
Číslo:
2
Klíčová slova:
Quantitative easing, event-study, monetary policy, equity markets
DOI (& full text):
Anotace:
In this paper we examine effects of the QE related statements made by the FED on major ekvity indices in the US. We consider days, when announcements had been made, as events for the event-study. We…více
In this paper we examine effects of the QE related statements made by the FED on major ekvity indices in the US. We consider days, when announcements had been made, as events for the event-study. We approach this methodology with aim to calculate excess returns on particular announcement day for Dow Jones Industrial Average, Standard´s & Poor´s 500, NASDAQ and Russell2000. Admitting complexity of those statements, and difficulty to isolate effects linked only to QE related information, we analysed statements individually, to be able to extrapolate deviations more accurately. Results indicate positive excess returns (above average performance over previous 60 days) on each index from 2008 to 2017 in average, while on some specific announcements, excess returns fell to negative range, which could be explained as misunderstanding of reaction function or active portfolio rebalancing towards assets directly influenced by the programme mentioned in the particular announcement. Considering also multiplicity, for DJIA, NASDAQ and S&P500 we conclude, that positive reactions follow especially information linked to prolongation or expansion of existing QE programme, while on the other hand initial information about QE cause mentioned portfolio rebalancing from equities towards other assets (RUSSEL2000 did not signal particular direction in line with announcement days’ information). We can also conclude that even if tapering linked information are considered as a part of the QE programmes, we did not find significant evidence of neither positive nor negative reaction on particular tapering-linked announcements. We add on, that the tapering and balance sheet unwinding are unprecedented to some extent, and therefore require further research, especially in current environment where such policy normalization is widely discussed.
Sekce:
Finance

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