Research-Thesis: The impact of ECB interventions on the equity risk premium in the Euro area during periods of fiancial stress (2004-2025).

Abstract

This thesis examines the impact of the European Central Bank’s (ECB) unconventional monetary policies on the implied equity premium (IEP) in the eurozone over the period January 2004–December 2025. The risk premium is calculated monthly as the inverse of the 12-month forward price-to-earnings ratio (ERP ≈ 1/PE_forward), based on I/B/E/S consensus estimates extracted via Refinitiv Eikon/Datastream for seven countries (Belgium, Germany, France, the Netherlands, Spain, Greece, and Italy).

The econometric framework combines OLS regressions with Newey-West HAC standard errors (T = 263 monthly observations) and fixed-effects panel models with cluster-robust standard errors (N = 1,841; G = 7). Three nested hypotheses are tested. Hypothesis H1 (aggregate effect) is not supported: no ECB proxy reaches statistical significance in the time series, with the VSTOXX alone capturing the dynamics of the ERP (R² ≈ 0.545). Hypothesis H2 (amplification during periods of financial stress) is supported: the APP×Stress interaction term is highly significant (t = −3.455; p < 0.001), confirming that asset purchases compress the risk premium exclusively when the VSTOXX exceeds its 90th percentile. This result is amplified in the panel data (β = −0.0103; t = −5.94; p = 0.001). Hypothesis H3 (geographical heterogeneity) is not supported: the transmission is geographically homogeneous between core and peripheral countries (non-significant differentials, p > 0.30). Triangulation using daily-frequency event studies corroborates these results.

These results show that the ECB’s unconventional measures act as a stabilizing mechanism during times of crisis, rather than as a permanent tool for suppressing risk premiums.