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U.S. stock markets and the role of real interest rates

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  • Huang, Wanling
  • Mollick, André Varella
  • Nguyen, Khoa Huu

Abstract

Using weekly data from January 3, 2003 to March 27, 2015, we examine the responses of U.S. stock returns (S&P 500, DJIA, and NASDAQ) to monetary policy, controlling for WTI oil prices and the value of the U.S. dollar (USD) against major currencies. Based on differences between the federal funds rate and inflation expectations, U.S. real interest rates have become continuously negative since January 28, 2009. Vector auto-regressions (VARs) suggest stronger linkages more recently and vine copula models identify the structure of dependence across these markets, which can help investors optimize portfolio diversification.

Suggested Citation

  • Huang, Wanling & Mollick, André Varella & Nguyen, Khoa Huu, 2016. "U.S. stock markets and the role of real interest rates," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 231-242.
  • Handle: RePEc:eee:quaeco:v:59:y:2016:i:c:p:231-242
    DOI: 10.1016/j.qref.2015.07.006
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    Cited by:

    1. Assefa, Tibebe A. & Esqueda, Omar A. & Mollick, André Varella, 2017. "Stock returns and interest rates around the World: A panel data approach," Journal of Economics and Business, Elsevier, vol. 89(C), pages 20-35.

    More about this item

    Keywords

    Exchange rates; Oil prices; Real interest rates; U.S. stock markets; Vine copulas;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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