ECB Language and Stock Returns – A Textual Analysis of ECB Press Conferences

41 Pages Posted: 22 Jul 2020 Last revised: 27 Sep 2021

See all articles by Rouven Möller

Rouven Möller

Ruhr University of Bochum - Department of Finance and Banking

Doron Reichmann

Ruhr University of Bochum - Department of Finance and Banking

Date Written: April 15, 2021

Abstract

This paper examines the language used by central bank officials in public press conferences and how it influences stock returns in the euro area. By proposing a sentiment mining approach that accounts for grammatical and syntactical cues, a distinction is drawn between (i) the general tone, (ii) uncertainty, and (iii) constraint expressed by ECB officials. The results show that as constraining language is often used to express policy commitment, press conferences with higher fractions of constraining language are associated with positive intraday stock price movements in times of unconventional monetary policy. In addition, we conclude that in times of crises, intraday returns are more sensitive towards the general tone of ECB officials as market participants may find it harder to grasp the future path of monetary policy. In further analyses, a distinction is made between sections within the press conferences that specifically address either the monetary analysis or the economic outlook. The results indicate that market participants interpret uncertain language in the economic outlook as a signal of expansive monetary policy decisions going forward as indicated by positive intraday stock returns. Finally, by proposing a novel rule-based approach to identify forward-looking statements of ECB press conferences, first evidence is provided in this paper that forward-looking answers given by ECB officials in the Q&A Sessions significantly affect euro area stock returns.

Keywords: Central Bank Communication; Forward Guidance; Textual Analysis

JEL Classification: E44, E52, E58, G14

Suggested Citation

Möller, Rouven and Reichmann, Doron, ECB Language and Stock Returns – A Textual Analysis of ECB Press Conferences (April 15, 2021). Quarterly Review of Economics and Finance, Vol. 80, 2021, Available at SSRN: https://ssrn.com/abstract=3638215 or http://dx.doi.org/10.2139/ssrn.3638215

Rouven Möller

Ruhr University of Bochum - Department of Finance and Banking ( email )

Universitätsstraße 150
Bochum, 44780
Germany
+49(0)234 32-27683 (Phone)

Doron Reichmann (Contact Author)

Ruhr University of Bochum - Department of Finance and Banking ( email )

Germany

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