Effects of Unconventional Monetary Policy on European Banks’ Stock Returns

This paper aims to evaluate the impact of Unconventional Monetary Policies (UMP) on the stock returns of top European banks. In the period of 2010-2015, four unconventional policies have been implemented, named the Securities Markets Programme (SMP), Long-Term Refinancing Operations (LTRO) program, Outright Monetary Transactions (OMT) program and the Asset Purchase Programme (APP). By using a time series event-study analysis, clear evidence is found that European banks’ stock returns positively reacted to SMP news; mainly in distressed countries. These positive effects are interpreted as proof that the European Central Bank (ECB) helped in restoring the critical debt crisis, by purchasing government debt of distressed countries. When evaluating the other three policies LTRO, OMT and APP separately, no significant effects are found. Additionally, when analyzing all four programs combined, no significant effects are found either.