The Euro Crisis and the 24h Pre-ECB Announcement Return

Abstract

We document economically and statistically large 24h pre-ECB announcement re- turns in European equity. For the overall market the respective annual premium (2010 – 2015) was over 6% (Sharpe ratio of 1.5). We show that the pre-ECB return is mainly driven by periods of high uncertainty during the European sovereign debt crisis which can be characterized as times of severe eurozone break-up fear. For these periods the premium for the Euro Stoxx 50 index is 2.5 times higher than in non-stressed periods; for the Euro Stoxx Banks index it reaches on average almost 3% (per announcement). Current theories and explanations that relate the positive premium to the uncertainty around an announcement or to a positively anticipated event are able to explain several of the stylized facts but cannot rationalize all characteristics of the ECB announcement returns.

Keywords: Announcement returns, ECB meetings, euro crisis, uncertainty

JEL Classification: G01, G10, G12 G15