Quantitative easing and exuberance in stock markets: Evidence from the euro area

Thomas Hudepohl (), Ryan van Lamoen and Nander de Vette

Journal of International Money and Finance, 2021, vol. 118, issue C

Abstract: In response to a prolonged period of low inflation, the ECB introduced QE in an attempt to steer inflation to its target of below, but close to, 2% in the medium term. This paper examines whether QE contributes to exuberance in euro area stock markets by using recent advances in bubble detection techniques (the GSADF test). We do so by linking price developments in ten euro area stock markets to a series of country specific macro fundamentals and QE. The results indicate that periods of QE coincide with exuberant investor behaviour, even after controlling for improving macro fundamentals.

Keywords: Exuberance; Asset price bubbles; Unconventional monetary policy; Quantitative easing (search for similar items in EconPapers)
JEL-codes: E52 E58 G12 G15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:118:y:2021:i:c:s0261560621001224

DOI: 10.1016/j.jimonfin.2021.102471

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