The effect of Quantitative Easing on stock indices in the US and the Eurozone and the relation between the EUR/USD and stock indices

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This thesis examines the effect of the quantitative easing (QE) policy of the European Central Bank (ECB) on the comovement among stock markets in the US and Eurozone. In addition, it also examines the relation between the EUR/USD and the US and Eurozone stock market indices in the time period as of July 1st 2014 (as of this date the euro depreciated sharply). The ECB announced their QE program in January 2015 and implemented it in March 2015. By testing the existence of comovement, a distinction has been made between the announcement and implementation date. Weekly data of the S&P 500, AEX, DAX, CAC40, IBEX and FTSE MIB has been used to perform the empirical analysis. The statistical models that are used for analyzing the existence of comovement are the augmented Dickey-Fuller test and the Johansen test. The Granger causality test is performed to test whether there exist a causal relation between stock markets. In addition, the Granger causality test is also used to analyse the relation between the EUR/USD and the stock market indices. With regard to the results on comovement, in general, there are not many results who show comovement among the stock market indices. There only exist comovement between the DAX and the AEX during the time period as the announcement, which implies that the announcement of a QE program influences the existence of comovement. The results of the Granger causality test imply that the Eurozone has a small influence on the US after the implementation of the QE program. To conclude on the relation between the EUR/USD and stock markets, all stock markets within this thesis influenced the EUR/USD in the time period as of July 1st 2014.
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