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The Reaction of Stock Prices to Unanticipated Changes in Money

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  • Douglas K. Pearce
  • V. Vance Roley

Abstract

This paper investigates the short-run effect of unexpected changes in the weekly money stock on common stock prices. Survey data on money market participants' forecasts of money changes are employed to construct the measure of unanticipated movements in the money stock. The results indicate that an unexpected increase in money depresses stock prices and, consistent with the efficient markets hypothesis, only the unexpected part of the weekly money announcement causes stock price fluctuations. The October 1979 change in Federal Reserve operating procedures appears to have made stock prices somewhat more sensitive to large money surprises.

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File URL: http://www.nber.org/papers/w0958.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0958.

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Date of creation: Aug 1982
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Publication status: published as Pearce, Douglas K. and V. Vance Roley. "The Reaction of Stock Prices to Unanticipated Changes in Money: A Note." Journal of Finance, editor Michael Brennan, Waverly Press, Inc. Vol. 38, No. 4, (September 1983), pp. 132 3-1333.
Handle: RePEc:nbr:nberwo:0958

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Cited by:
  1. O. David Gulley & Jahangir Sultan, 2003. "The link between monetary policy and stock and bond markets: evidence from the federal funds futures contract," Applied Financial Economics, Taylor & Francis Journals, vol. 13(3), pages 199-209.
  2. Jeffrey A. Frankel & Gikas A. Hardouvelis, 1983. "Commodity Prices, Overshooting, Money Surprises, and Fed Credibility," NBER Working Papers 1121, National Bureau of Economic Research, Inc.

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