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Europe, NEWSLETTER, technical analysis, World economy


Stefano Francesco Fugazzi (founder of ABC Economics) reports.

Sourced from this month’s issue of The World Of ABC Economics.

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 the Targeted Long Term Refinancing Operations I and II.


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 assess the generation of abnormal return (AR) and cumulative abnormal return (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 ARs and CARs 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:

5 June 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.

10 March 2016: the ECB announced four new targeted longer-term refinancing operations (TLTRO II) to reinforce the ECB’s accommodative monetary policy stance and to foster new lending. The new operations will be conducted from June 2016 to March 2017 at a quarterly frequency. All the new operations will have a four-year maturity, with the possibility of repayment after two years.

TLTRO results (5 June 2014)

a1 a2 a3 a4

TLTRO II results (10 March 2016)

a5 a6 a7 a8


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

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 TLTRO II: day -10).

Hypothesis 2 validated. On average, banking stocks reacted more positively to the ECB announcements. The FTSE ITALY BANKS index outperformed the FTSE MIB in both instances, recording higher CARs between days -9 and +3 in the case of the first TLTRO and between day -6 and day +9 around the time of the announcement of TLTRO II.

Our t-test assessment returned a p-value below 0.05, suggesting a close correlation between the stock indexes’ movements.




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acquista ABC ITALIA, edizione 2016

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