Stock market uncertainty and European Central Bank announcements

Sammanfattning

This thesis examines whether European Central Bank (ECB) interest rate announcements affect realized and implied volatility in Eurozone equity markets. Using daily EURO STOXX 50 and VSTOXX data from 2007 to 2025, to gather realized and implied volatility, respectively. Together with 183 ECB announcement dates and macroeconomic controls for inflation, unemployment, GDP growth and market implied interest rate expectations. The thesis applies OLS regressions with Newey-West standard errors, GARCH(1.1) models and GARCH-X specifications. The results show limited evidence that ECB announcement days increase realized EURO STOXX 50 volatility. The ECB dummy is positive but statistically insignificant in the main absolute return OLS model. By contrast, the implied market rate variable is positive and statistically significant, indicating that volatility is more closely associated with unexpected monetary policy information than with the scheduled announcement event. The GARCH estimates show strong volatility persistence in EURO STOXX 50 returns, while the GARCH-X results do not find that ECB-related variables explain conditional volatility. For VSTOXX, the ECB dummy is negative and significant, consistent with uncertainty resolution once policy decisions are announced.