The ECB's corporate sector purchase programme: Impact on euro-denominated corporate bond index spreads
Elo, Antero (2017)
Elo, Antero
2017
Kuvaus
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The European Central Bank (ECB) has joined the other major central banks in resorting to asset purchase programs as to offer more monetary stimulus to the economy and to address the prolonged low levels of inflation. During the global financial crisis and the European sovereign debt crisis, the ECB exhausted the effectiveness of its conventional monetary policy measures by lowering its main refinancing rate to zero lower bound. As the interest rates were close to zero and the economy required further monetary stimulus, in 2014 the ECB announced its large-scale asset purchase program. This program was extended in 2015 and in 2016 the ECB added corporate sector purchase programme to its existing asset purchase programs.
This research studies the impact of the ECB’s corporate sector purchase programme. By using a regression based event study the impact of the announcements regarding the corporate sector purchase programme on six different euro-denominated corporate bond index spreads is analyzed. The corporate spreads are divided into two sector groups financial and non-financial, which are both further divided into three groups according to credit ratings. Moreover, some control variables are added to the regression as to identify other factors affecting the credit spread. The empirical results show that the announcements significantly reduced the credit spread on corporate bond indices. The reaction is found to be largest on indices of lower rated corporate bonds, where the biggest reaction is reported for BBB-rated financial corporate bond index spread. The impact decreases as moving towards higher rated bonds and the lowest cumulative reactions are reported for AA-rated non-financial and financial corporate bond index spreads. Furthermore, two different event windows are estimated and the results show that the impact is higher for 2-day event window as opposed to 1-day event window. This pattern is consistent on individual events and cumulative reactions. From the control variables analyzed, only the implied volatility index VSTOXX is found to be statistically significant.
This research studies the impact of the ECB’s corporate sector purchase programme. By using a regression based event study the impact of the announcements regarding the corporate sector purchase programme on six different euro-denominated corporate bond index spreads is analyzed. The corporate spreads are divided into two sector groups financial and non-financial, which are both further divided into three groups according to credit ratings. Moreover, some control variables are added to the regression as to identify other factors affecting the credit spread. The empirical results show that the announcements significantly reduced the credit spread on corporate bond indices. The reaction is found to be largest on indices of lower rated corporate bonds, where the biggest reaction is reported for BBB-rated financial corporate bond index spread. The impact decreases as moving towards higher rated bonds and the lowest cumulative reactions are reported for AA-rated non-financial and financial corporate bond index spreads. Furthermore, two different event windows are estimated and the results show that the impact is higher for 2-day event window as opposed to 1-day event window. This pattern is consistent on individual events and cumulative reactions. From the control variables analyzed, only the implied volatility index VSTOXX is found to be statistically significant.