Central Bank communication and asset prices

Abstract

This thesis invesIgates the impact of European Central Bank (ECB) communicaIon on European stock markets, with a parIcular emphasis on press conferences and the integraIon of Environmental, Social, and Governance themes. Over recent decades, central bank communicaIon has evolved into a core instrument of monetary policy, shaping market expectaIons alongside convenIonal tools. The ECB’s post-meeIng press conferences are especially influenIal, as investors scruInize the language used by the President to interpret both monetary policy stance and economic outlook. Using senIment analysis on ECB press conference statements, the study applies both a lexicon-based method to measure monetary and economic tone, and advanced natural language processing to measure ESG senIment. These senIment indicators are then tested against equity market data, including the Eurostoxx50 index, its ESG counterpart, and volaIlity measures. The results indicate that communicaIon by the ECB does affect markets, but its influence is modest and short-lived. A more restricIve monetary tone tends to reduce stock returns on the day of the announcement, while a posiIve economic outlook increases them. However, these effects largely vanish once broader market factors are considered, suggesIng that communicaIon alone rarely drives lasIng movements. With respect to environmental, social, and governance themes, the impact remains limited, reflecIng both the relaIve novelty and the low frequency of such references in ECB press conferences. By integraIng modern natural language processing with financial econometrics, this research adds to the growing literature on central bank communicaIon and highlights the emerging, though sIll marginal, role of sustainability-related messages.