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

55 Pages Posted: 22 Aug 2017 Last revised: 28 Sep 2019

See all articles by Maxim Ulrich

Maxim Ulrich

Karlsruhe Institute of Technology

Elmar Jakobs

Karlsruhe Institute of Technology

Lukas May

Karlsruhe Institute of Technology

Julius Landwehr

Karlsruhe Institute of Technology

Date Written: November 15, 2017

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

Suggested Citation

Ulrich, Maxim and Jakobs, Elmar and May, Lukas and Landwehr, Julius, The Euro Crisis and the 24h Pre-ECB Announcement Return (November 15, 2017). Available at SSRN: https://ssrn.com/abstract=3020899 or http://dx.doi.org/10.2139/ssrn.3020899

Maxim Ulrich (Contact Author)

Karlsruhe Institute of Technology ( email )

Bluecherstrasse 17
Karlsruhe, Baden Württemberg 76131
Germany
+4972160844270 (Phone)

HOME PAGE: http://risk.fbv.kit.edu/c-ram

Elmar Jakobs

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Lukas May

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Julius Landwehr

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

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