Global financial market impact of the announcement of the ECB's asset purchase programme

Georgiadis, Georgios; Gräb, Johannes

doi:10.1016/j.jfs.2016.07.009

Cited by 80 publications

(45 citation statements)

References 11 publications

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“…The launch of the programme persistently reduced long-term sovereign bond yields (Andrade et al, 2016) and the related APP announcements had a price impact that generally increased with maturity and riskiness of assets, with significant spill-overs to non-targeted assets, such as corporate bonds (Altavilla et al, 2015). The APP announcement had international spillovers, boosting equity prices around the world and causing a broad-based depreciation of the euro, but it did not lead to an increase in portfolios flows to emerging market economies (Georgiadis and Gräb, 2016).…”

Section: Related Literaturementioning

confidence: 99%

The portfolio of euro area fund investors and ECB monetary policy announcements

Bubeck

Habib

Manganelli

2018

Journal of International Money and Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. bond prices, without affecting the positions that arbitrageurs hold in equilibrium and therefore they do not affect risk premia. As a consequence, the signalling channel should not have an impact on active reallocation (due to actual changes in portfolio shares), but should have an impact on passive reallocation (due to the effects on prices). Terms of use: Documents inA second important channel, which typically goes under the name of Portfolio Balance Channel, works through the effect that monetary policy operations have on risk premia. For instance, according to preferred habitat models, following surprises in purchases of long term Treasury bonds by the central bank, investors will be forced to hold smaller positions in long term bonds and bear less duration risk, which in turn will lead to a decrease in risk premia and an increase in bond prices.Therefore, monetary policy shocks associated with the portfolio balance channel should have an impact both on the active and on the passive reallocation of investors. ECB Working Paper No 2116 / December 2017 2Our main findings show that the ECB monetary policy did not lead to significant active reallocation in the portfolio of euro area fund investors. Instead, our empirical findings provide robust evidence that the class of fund investors are affected by monetary policy mainly through the impact it has on asset prices and exchange rates by changing expectations of future interest rates (the signalling channel). The significant valuation effects associated with these price movements passively shifted the asset allocation of euro area fund investors towards riskier securities, like funds investing in European and Emerging Market equity, and away from European bond funds. These effects are more pronounced for unconventional measures, such as the Asset Purchase Programme (APP).Overall, our empirical evidence is consistent with monetary policy affecting unsophisticated investors' behaviour via the signalling channel, rather than the portfolio balance channel. Our results are also consistent with the empirical evidence on the behaviour of investors in mutual funds, who are generally reluctant to sell past winners, and the growing literature on rational inattention, predicting that unsophisticated investors adjust their portfolios only rarely.

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Section: Related Literaturementioning

confidence: 99%

The portfolio of euro area fund investors and ECB monetary policy announcements

Bubeck

Habib

Manganelli

2018

Journal of International Money and Finance

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“…Kettemann and Krogstrup (2014) also find evidence for an announcement effect of Swiss National Bank's covered bond purchase program, even though they do not find evidence for a purchase effect. Several studies focus explicitly on ECB's APP: Georgiadis and Gräb (2016) investigate the impact of announcing the complete Eurosystem APP program on the euro exchange rate, global equity prices and bond yields. Abidi et al (2017) use an event study to investigate the ex ante effect of the announcement of the CSSP program in March 2016.…”

Section: Literature Reviewmentioning

confidence: 99%

When Central Banks Buy Corporate Bonds: Target Selection and Impact of the European Corporate Sector Purchase Program

Galema

Lugo

2017

SSRN Journal

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In March 2016 the European Central Bank (ECB) announced the Corporate Sector Purchase Program (CSPP) as part of its expanded asset purchase program. Using hand-collected, weekly lists of bonds purchased and held under the CSPP, we investigate the drivers of the purchase decisions and the impact of the program on the financing decisions of targeted firms. We find that, consistent with the goal of decreasing credit premia while minimizing price distortions, purchases of eligible bonds characterized by both higher credit risk and higher liquidity are more likely and more timely. Bonds issued by firms more likely to face difficulties in tapping the credit market directly are also more likely to be purchased. The CSPP appears effective in alleviating these difficulties. Firms targeted by the program increase their amount of bonds outstanding significantly more than non-targeted eligible issuers; the effect is mostly driven by companies making limited use of market debt before the start of the program. However, no difference is found in the variation of total debt between targeted and non-targeted eligible issuers. Together, these results suggest that the CSPP has favored the substitution of bonds for other forms of debt capital.

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“…Overall, they find that the effects of asset purchases are not limited to the targeted -5 -assets nor to times of financial market stress. Georgiadis and Gräb (2016) focus on global financial markets and estimate the announcement effects of the asset purchase programs on the euro exchange rate, global equity prices and bond yields. They use daily data from 1 January 2007 to 31 January 2015 and a sample of the Euro Area's 39 major trading partners.…”

Section: A Fundamental Drivers Of Government Bond Yieldsmentioning

confidence: 99%

Quantitative Easing and Exuberance in Government Bond Markets: Evidence from the ECB's Expanded Asset Purchase Program

2017

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SUMMARY -This paper examines whether the ECB's Quantitative Easing (QE) policy is causing government bond prices to deviate from their fundamental value.We use a recent advance in the methodology to measure exuberant price behavior in financial time series introduced by Phillips et al. (2015). We extend this methodology and apply it to government bond prices. The results show that the QE policy substantially inflated government bond prices in Euro Area countries to such an extent that bond prices are no longer in line with the underlying fundamental value. We argue that careful monitoring is required when the QE policy is eventually reversed. The test procedure outlined in this paper provides a monitoring tool to do so.JEL-code -G12; G15; E52

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Global financial market impact of the announcement of the ECB's asset purchase programme

Cited by 80 publications

References 11 publications

The portfolio of euro area fund investors and ECB monetary policy announcements

The portfolio of euro area fund investors and ECB monetary policy announcements

When Central Banks Buy Corporate Bonds: Target Selection and Impact of the European Corporate Sector Purchase Program

Quantitative Easing and Exuberance in Government Bond Markets: Evidence from the ECB's Expanded Asset Purchase Program

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