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debt, Europe, growth, Italy

Politics and monetary easing, ECB playing tricks on markets with TLTRO e QE

Stefano Fugazzi, 8 February 2015 (London) –  The research unit of ABC Economics is pleased to present the conclusions of an event study which observed the creation of abnormal of returns in the Italian stock market indexes around the ECB announcement of monetary easing programmes such as TLTRO (Targeted Long Term Refinancing Operation) and QE (Quantitative Easing).


Hypothesis 1 – The Italian stock market responds positively to the announcement of monetary easing programmes.

Hypothesis 2 – Bank stocks generate higher returns than non-bank stocks around the ECB announcement of monetary easing programmes.

Research methods

We collected secondary data to measure abnormal returns (AR) and cumulative abnormal returns (CAR).

To test Hypothesis 1 we benchmarked the FTSE MIB against the EURO STOXX 50.

To test Hypothesis 2 we compared the FTSE MIB index to his banking sector subset, the FTSE ITALY BANKS (IT8300.MI).

To calculate both abnormal returns (AR) and cumulative abnormal returns (CAR) we considered an estimation window of 252 trading days, from 11 to 262 days prior to events.

We utilised an event window of 21 trading days, -/+10 days around the selected events.

Observed events

We observed the AR and CAR patterns around two dates:

June 5, 2014: the ECB announced a series of targeted longer-term refinancing operations (TLTROs) aimed at improving bank lending to the euro area non-financial private sector, excluding loans to households for house purchase, over a window of two years.

January 22, 2015: the ECB announced a Quantitative Easing (QE) programme aimed at reinvigorating the Eurozone economy and to combat deflationary patterns.

TLTRO results (June 5, 2014)

event tl 1

event tl 2

QE results (January 22, 2015)

event qe 1 event qe 2


Hypothesis 1 validated. In line with our expectations and current economic literature, markets have responded positively to the announced of monetary easing programmes.

Hypothesis 2 validated. On average, banking stocks (see the banking sector index FTSE ITALY BANKS – IT8300.MI) reacted more positively to the ECB announcements.

A combination of factors including Draghi’s comments prior to the announcements and market expectations led to the generation of positive cumulative abnormal returns (CAR) prior to the actual events (TLTRO: day -6 and QE; day -5).

We noted that both monetary easing operations were announced just before or soon after general elections with potentially destabilising outcomes as if the ECB wanted to pre-empt any shocks to financial markets around the time of the vote.


ECB website (http://www.ecb.europa.eu/home/html/index.en.html )

Fugazzi, S. (2004), Do strategic alliances create value? The case of the US biotechnology firms, M. Smurfit Graduate School of Business (UCD, Ireland).

Graziano, E., A., La crescita delle imprese attraverso operazioni di spin-off: l’impatto dei media sul comportamento degli investitori, Università di Roma Tor Vergata

Hedgeinvest.ch (http://www.hedgeinvest.ch/wp-content/uploads/2015/01/Commento-QE-BCE-ITA.pdf )

Italian stock exchange website (http://www.borsaitaliana.it/)

McNamara, P. (2003,2004), Research methods (M. Smurfit Graduate School of Business, lecture notes).

Yahoo! Finance website (https://it.finance.yahoo.com/)




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