Short term market reaction to the U.S. quantitative easing announcement of September 13th, 2012

Abstract

U.S. government made the third quantitative easing announcement on September 13th, 2012. Previous study has focused more on the other macroeconomic variables. This paper mainly examines the stock market reaction to this announcement. Because of the failure in previous quantitative easing monetary policy, most study perceives this unconventional monetary tool as negative effect to the market. Using a standard event study methodology, several findings are noted. First, the quantitative easing announcements in the U.S. tend to have a positive impact on the stock returns. Second, a positive abnormal return is also detected on the day prior to the event day. Last, different industries show different reaction to this announcement. Therefore, the third quantitative easing has helped investors rebuild their confidence in the short term market.