The impact of monetary policy interventions on banking sector stocks: an empirical investigation of the COVID-19 crisis

Niall O’Donnell (), Darren Shannon and Barry Sheehan
Additional contact information
Niall O’Donnell: University of Limerick
Darren Shannon: University of Limerick
Barry Sheehan: University of Limerick

Financial Innovation, 2024, vol. 10, issue 1, 1-41

Abstract: Abstract The enduring impact of the COVID-19 crisis on the financial sector is undeniable, persisting far beyond the eventual waning of the pandemic. This research examines central bank interventions during the pandemic, using a quantitative event study approach over a five-day window to analyse the impact of 188 monetary policy announcements on banking stocks in China, the U.S., and Europe. Our results demonstrate how monetary policy announcements targeting different economic mechanisms have produced a diverse market reaction throughout the COVID-19 pandemic. Namely, cuts in interest rates and the maintenance of a low interest rate environment by the Federal Reserve resulted in negative abnormal returns in the U.S.A., while short-term announcements surrounding intra-day credit and liquidity provisions boosted banking sector stock prices. In Europe, a muted reaction by the banking sector was observed, with negative abnormal returns observed in response to the ECB’s 2% inflation objectives. Finally, banking stocks in China responded strongly and positively to foreign currency and exchange-related announcements by the People’s Bank of China. The results and insights from this analysis can thus inform preparations made by policymakers, governments, and financial market stakeholders in the event of future waves of COVID-19, or further extreme societal disruptions.

Keywords: COVID-19; Financial markets; Monetary policy; Central banks; Stock markets; Event study (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1186/s40854-023-00575-2 Abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:fininn:v:10:y:2024:i:1:d:10.1186_s40854-023-00575-2

Ordering information: This journal article can be ordered from
http://www.springer. ... nomics/journal/40589

DOI: 10.1186/s40854-023-00575-2

Access Statistics for this article

Financial Innovation is currently edited by J. Leon Zhao and Zongyi

More articles in Financial Innovation from Springer, Southwestern University of Finance and Economics
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().