The Euro Crisis and the 24h Pre-ECB Announcement Return
58 Pages Posted: 22 Aug 2017 Last revised: 1 Dec 2017
Date Written: November 15, 2017
We document economically and statistically large 24h pre-ECB announcement returns in European equity. For selected industries, such as the European banking sector, the respective annual premium (2010–2015) was 12% (Sharpe ratio of 1.6); at a time when the annual return of the European banking sector was on average flat (lost decade). Concerns of an upcoming Euro-zone break-up explains 25% of the 24h pre-ECB announcement premium. After the 'whatever it takes' promise of ECB Chairman Mario Draghi, our measures for uncertainty of a Euro-zone break-up declined significantly, together with the 24h pre-ECB announcement premium.
Keywords: ECB announcements, equity premium, return anomaly, euro crisis, monetary policy put, announcement premium
JEL Classification: G01, G10, G12, G15
Suggested Citation: Suggested Citation