Vaasan yliopiston opinnäytteet

Kauppatieteellinen tiedekunta, 2016

Lappalainen, Juha

The effect of quantitative easing announcements on stock returns

Ohjaaja/Valvoja (DI):
Janne Äijö
Kauppatieteiden maisteri
Laskentatoimi ja rahoitus
Master's Degree Programme in Finance
Tutkielman kieli:
When interest rates approach zero, conventional monetary policy may cease to be effective and central banks may adopt the use of unconventional monetary policies, such as quantitative easing. The popularity of QE has increased particularly in the wake of the financial crisis that began in 2007. QE and the effect it has on financial markets has been a regularly discussed topic in financial journalism in the recent years. News articles have often claimed that QE has an inflationary effect on stock prices but has this actually been the case?

This thesis studies the stock market reaction to quantitative easing announcements made by central banks. The reaction is examined for local all shares indices, and large cap and small cap indices to find out whether the stock prices of companies with different levels of market capitalization react differently.

A variety of parametric and nonparametric event study tests are employed to see if the reaction is significant, positive, and do the prices of small cap stocks react differently relative to large cap stocks. The results from the parametric and nonparametric event study tests show that the local stock indices do indeed show a positive and significant reaction to the announcements. Moreover, the reaction is pronounced in the case of small cap stocks.
quantitative easing, unconventional monetary policy, event study, abnormal returns, market efficiency, stock index
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