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On monetary policy and stock market anomalies

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  • Alexandros Kontonikas
  • Alexandros Kostakis

Abstract

This study utilizes a macro-based VAR framework to investigate whether stock portfolios formed on the basis of their value, size and past performance characteristics are affected in a differential manner by unexpected US monetary policy actions during the period 1967-2007. Full sample results show that value, small capitalization and past loser stocks are more exposed to monetary policy shocks in comparison to growth, big capitalization and past winner stocks. Subsample analysis, motivated by variation in the realized premia and parameter instability, reveals that monetary policy shocks’ impact on these portfolios is significant and pronounced only during the pre-1983 period.

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File URL: http://www.gla.ac.uk/media/media_182005_en.pdf
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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2010_29.

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Date of creation: Nov 2010
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Handle: RePEc:gla:glaewp:2010_29

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Keywords: Monetary policy; Federal funds rate; Market anomalies; Credit channel; Risk premia;

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  1. Allan Timmermann & Gabriel Perez-Quiros, 1999. "Firm Size and Cyclical Variations in Stock Returns," FMG Discussion Papers dp335, Financial Markets Group.
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Cited by:
  1. Kontonikas, Alexandros & MacDonald, Ronald & Saggu, Aman, 2013. "Stock market reaction to fed funds rate surprises: State dependence and the financial crisis," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4025-4037.
  2. Florackis, Chris & Kontonikas, Alexandros & Kostakis, Alexandros, 2013. "Stock Market Liquidity and Macro-Liquidity Shocks: Evidence from the 2007-2009 Financial Crisis," SIRE Discussion Papers 2013-58, Scottish Institute for Research in Economics (SIRE).

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