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European Monetary Policy Surprises: The Aggregate and Sectoral Stock Market Response

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Author Info
Bredin, Don (University College Dublin)
Hyde, Stuart (University of Manchester)
O'Reilly, Gerard (Central Bank and Financial Services Authority of Ireland)

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Abstract

In this paper we investigate the stock market response to international monetary policy changes in the UK and Germany. Specifically, we analyse the impact of (un)expected changes in UK and German/euro area policy rates on UK and German aggregate and sectoral stock returns in an event study. The decomposition of the (un)expected changes in policy rates are based on futures markets. Overall, our results suggest that, UK monetary policy surprises have a significant negative influence on both aggregate and industry level stock returns in both the UK and Germany. The influence of German/Euro area monetary policy shocks appears insignificant for both countries.

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Publisher Info
Paper provided by Central Bank & Financial Services Authority of Ireland (CBFSAI) in its series Research Technical Papers with number 10/RT/05.

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Length: 25 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:cbi:wpaper:10/rt/05

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    Other versions:
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  4. Refet Gurkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," Macroeconomics 0504013, EconWPA. [Downloadable!]
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  5. Ben S. Bernanke & Kenneth N. Kuttner, 2005. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," Journal of Finance, American Finance Association, vol. 60(3), pages 1221-1257, 06. [Downloadable!] (restricted)
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  6. Michael Ehrmann, 2000. "Comparing monetary policy transmission across European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(1), pages 58-83, March. [Downloadable!] (restricted)
  7. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 907-31, November.
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  8. Bomfim, Antulio N., 2003. "Pre-announcement effects, news effects, and volatility: Monetary policy and the stock market," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 133-151, January. [Downloadable!] (restricted)
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  10. Kerstin Bernoth & Jürgen von Hagen, 2004. "The Euribor Futures Market: Efficiency and the Impact of ECB Policy Announcements," International Finance, Blackwell Publishing, vol. 7(1), pages 1-24, 03. [Downloadable!] (restricted)
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  15. Michael Ehrmann & Marcel Fratzscher, 2004. "Taking stock: monetary policy transmission to equity markets," Working Paper Series 354, European Central Bank. [Downloadable!]
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  19. Sellin, Peter, 2001. " Monetary Policy and the Stock Market: Theory and Empirical Evidence," Journal of Economic Surveys, Blackwell Publishing, vol. 15(4), pages 491-541, September. [Downloadable!] (restricted)
  20. Conover, C. Mitchell & Jensen, Gerald R. & Johnson, Robert R., 1999. "Monetary environments and international stock returns," Journal of Banking & Finance, Elsevier, vol. 23(9), pages 1357-1381, September. [Downloadable!] (restricted)
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  22. Vickers, John, 2000. "Monetary Policy and Asset Prices," Manchester School, University of Manchester, vol. 68(0), pages 1-22, Supplemen. [Downloadable!] (restricted)
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