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Monetary Policy and Stock Returns

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  • Ewing, Bradley T

Abstract

The Standard & Poor stock market composite index is examined to determine how much of the variance in returns can be explained by monetary policy. The note employs the econometric technique of generalized forecast error variance decomposition developed by Koop et al. (1996) and Pesaran and Shin (1998). Unlike the traditional orthogonalized decomposition, the generalized version is invariant to the ordering of the variables in the underlying vector autoregression. The results provide important information about the relationship between monetary policy and the stock market. Copyright 2001 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Suggested Citation

  • Ewing, Bradley T, 2001. "Monetary Policy and Stock Returns," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 73-79, January.
  • Handle: RePEc:bla:buecrs:v:53:y:2001:i:1:p:73-79
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    1. Das, Satya P. & Donnenfeld, Shabtai, 1989. "Oligopolistic competition and international trade : Quantity and quality restrictions," Journal of International Economics, Elsevier, vol. 27(3-4), pages 299-318, November.
    2. Schmitz, Patrick W, 2001. "The Hold-up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 1-17, January.
    3. Sheshinski, Eytan, 1976. "Price, Quality and Quantity Regulation in Monopoly Situations," Economica, London School of Economics and Political Science, vol. 43(17), pages 127-137, May.
    4. Campbell, Neil, 1998. "Can We Believe in Cold Showers?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 131-162.
    5. Vousden, Neil & Campbell, Neil, 1994. "The organizational cost of protection," Journal of International Economics, Elsevier, vol. 37(3-4), pages 219-238, November.
    6. Donnenfeld, Shabtai & Weber, Shlomo & Ben-Zion, Uri, 1985. "Import controls under imperfect information," Journal of International Economics, Elsevier, vol. 19(3-4), pages 341-354, November.
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    Cited by:

    1. Ewing, Bradley T., 2001. "Cross-Effects of Fundamental State Variables," Journal of Macroeconomics, Elsevier, vol. 23(4), pages 633-645, October.
    2. Ewing, Bradley T. & Sari, Ramazan & Soytas, Ugur, 2007. "Disaggregate energy consumption and industrial output in the United States," Energy Policy, Elsevier, vol. 35(2), pages 1274-1281, February.
    3. Sari, Ramazan & Soytas, Ugur, 2007. "The growth of income and energy consumption in six developing countries," Energy Policy, Elsevier, vol. 35(2), pages 889-898, February.
    4. Tang, Yong & Luo, Yong & Xiong, Jie & Zhao, Fei & Zhang, Yi-Cheng, 2013. "Impact of monetary policy changes on the Chinese monetary and stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(19), pages 4435-4449.
    5. Ewing, Bradley T. & Payne, James E., 2005. "The response of real estate investment trust returns to macroeconomic shocks," Journal of Business Research, Elsevier, vol. 58(3), pages 293-300, March.
    6. Tsai, Chun-Li, 2011. "The reaction of stock returns to unexpected increases in the federal funds rate target," Journal of Economics and Business, Elsevier, vol. 63(2), pages 121-138.
    7. Bradley Ewing & Shawn Forbes & James Payne, 2003. "The effects of macroeconomic shocks on sector-specific returns," Applied Economics, Taylor & Francis Journals, vol. 35(2), pages 201-207.
    8. Prabu A, Edwin & Bhattacharyya, Indranil & Ray, Partha, 2016. "Is the stock market impervious to monetary policy announcements: Evidence from emerging India," International Review of Economics & Finance, Elsevier, vol. 46(C), pages 166-179.
    9. Tsai, Chun-Li, 2011. "The reaction of stock returns to unexpected increases in the federal funds rate target," Journal of Economics and Business, Elsevier, vol. 63(2), pages 121-138, March.

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