ECB Language and Stock Returns – A Textual Analysis of ECB Press Conferences

We examine how the language used by central bank officials in public press conferences influences stock returns in the euro area. In line with the concept of Odyssean Forward Guidance, we find that using constraining language to express policy commitment increases the effectiveness of Forward Guidance in times of unconventional monetary policy. In further analysis, we provide strong evidence that market participants interpret higher levels of uncertain language in the economic outlook as a sign of Delphic Forward Guidance, indicated by positive intraday stock returns. In addition, we find that in a period of high economic uncertainty, tone sensitivities of financial market participants increase as they find it hard to grasp the future path of monetary policy. Finally, by proposing a novel rule-based approach to identify forward-looking statements of ECB press conferences, we provide first evidence that forward-looking statements in the answers given by ECB officials in the Q&A Sessions significantly affect Euro area stock returns