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On Stock Market Returns and Monetary Policy

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 Thorbecke, Willem

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Abstract

Financial economists have long debated whether monetary policy is neutral. This article addresses this question by examining how stock return data respond to monetary policy shocks. Monetary policy is measured by innovations in the federal funds rate and nonborrowed reserves, by narrative indicators, and by an event study of Federal Reserve policy changes. In every case the evidence indicates that expansionary policy increases ex post stock returns. Results from estimating a multifactor model also indicate that exposure to monetary policy increases an asset's ex ante return. Copyright 1997 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 52 (1997)
Issue (Month): 2 (June)
Pages: 635-54
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Handle: RePEc:bla:jfinan:v:52:y:1997:i:2:p:635-54

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Willem Thorbecke & Lee Coppock, 1999. "Monetary Policy, Stock Returns, and the Role of Credit in the Transmission of Monetary Policy," Macroeconomics 9902006, EconWPA. [Downloadable!]
  2. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July. [Downloadable!] (restricted)
  3. James Tobin, 1977. "Monetary Policies and the Economy -- The Transmission Mechanism," Cowles Foundation Discussion Papers 456, Cowles Foundation, Yale University. [Downloadable!]
  4. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The effects of monetary policy shocks: evidence from the flow of funds," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
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  5. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The Effects of Monetary Policy Shocks: Some Evidence from the Flow of Funds," NBER Working Papers 4699, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Stulz, Rene M, 1986. " Asset Pricing and Expected Inflation," Journal of Finance, American Finance Association, vol. 41(1), pages 209-23, March. [Downloadable!] (restricted)
  7. Campbell, John Y & Ammer, John, 1993. " What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns," Journal of Finance, American Finance Association, vol. 48(1), pages 3-37, March. [Downloadable!] (restricted)
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  8. Campbell, John Y & Mei, Jianping, 1993. "Where Do Betas Come From? Asset Price Dynamics and the," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(3), pages 567-92. [Downloadable!] (restricted)
  9. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June. [Downloadable!] (restricted)
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  10. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September. [Downloadable!] (restricted)
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  11. Boschen, John F & Mills, Leonard O, 1995. "The Relation between Narrative and Money Market Indicators of Monetary Policy," Economic Inquiry, Oxford University Press, vol. 33(1), pages 24-44, January.
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