Market dynamics and critical responses of leading European banks to ECB’s expansionary policies

Purpose This paper aims to address the following research questions: How do European banking stocks react; to the European Central Bank’s (ECB) expansionary policies? Additionally, which types of expansionary measures (conventional vs. unconventional) exert the most significant influence on bank stock performance? Design/methodology/approach Utilizing an event study approach combined with panel regression analysis, this research evaluates the impact of 77 key ECB policy interventions on the stock prices of 14 large European banks from 2007 to 2020. The event windows focus on cumulative abnormal returns (CARs) over short-term and medium-term periods to capture stock reactions to both conventional and unconventional monetary measures. Findings The results indicate that European banking stocks respond positively to both conventional (e.g. interest rate cuts) and unconventional (e.g. asset purchases, liquidity provisions) expansionary policies. However, asset purchase programs seem to have the most substantial and sustained impact, generating stronger positive cumulative abnormal returns over longer event windows compared to other interventions. Originality/value This article contributes to the literature by providing a detailed analysis of how different types of ECB monetary interventions influence bank stock performance. It is the first study to analyze and compare the persistence and strength of these measures across various event windows, offering valuable insights for investors and policymakers in assessing the effectiveness of monetary policy on capital markets. Highlights