Does the ECB's quantitative easing stimulate the Eurozone stock prices?

Abstract

This study delves into the nuanced relationship between quantitative easing (QE) programs implemented by the European Central Bank (ECB) and asset prices in the Eurozone, focusing particularly on the short-term effects. Through the utilization of alinear regression model, supplemented by the introduction of a binary variable
designed to isolate the immediate impact of ECB announcements, the analysis aims to disentangle the multifaceted influences of monetary policy communication and broader QE measures on stock price dynamics.
The findings of this investigation reveal notable insights into the effects of ECB QE initiatives on asset prices. While certain components of the ECB's QE programs, such as the asset-backed securities purchase program and the third covered bond purchase program, exhibit statistically significant effects on asset prices, others, including the
corporate sector purchase program and the public sector purchase program, do not. Additionally, the statistical analysis does not provide sufficient evidence to conclusively support the hypothesis that ECB QE programs lead to increased asset prices in the Eurozone, particularly in the short term. Despite the empirical evidence presented, it is crucial to acknowledge the methodological limitations inherent in the study. Endogeneity, anticipation of market behavior, and qualitative market dynamics pose notable challenges to the interpretation of results. Nevertheless, this study contributes to a deeper understanding of the mechanisms through which monetary
policy influences financial markets in the Eurozone. The implications of these findings extend beyond academic discourse, carrying significance for policymakers, investors, and market participants. By offering insights
into the effectiveness of QE measures as tools for promoting economic stability and growth, this study informs decision-making processes and shapes expectations regarding the impact of ECB policies on asset prices in the Eurozone. In conclusion, while the analysis presented in this study represents a step forward in unraveling the complexities of the relationship between ECB QE programs and asset prices, further research is warranted to address the methodological limitations and refine our understanding of this crucial aspect of monetary policy transmission mechanisms.