IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

European monetary policy surprises: the aggregate and sectoral stock market response

Author Info

  • Don Bredin

    (University College Dublin, Ireland)

  • Stuart Hyde

    (University of Manchester, UK)

  • Dirk Nitzsche

    (City University, UK)

  • Gerard O'Reilly

    (CBSFAI, Ireland)

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 the UK and German|Euro area policy rates on the UK and German aggregate and sectoral equity returns in an event study. The decomposition of (un)expected changes in policy rates is based on futures markets. Overall, our results suggest that, the UK monetary policy surprises have a significant negative influence on both aggregate and industry level returns in both countries. The influence of German|Euro area monetary policy shocks appears insignificant for both Germany and the UK. Copyright © 2007 John Wiley & Sons, Ltd.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1002/ijfe.341
File Function: Link to full text; subscription required
Download Restriction: no

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 14 (2009)
Issue (Month): 2 ()
Pages: 156-171

as
in new window

Handle: RePEc:ijf:ijfiec:v:14:y:2009:i:2:p:156-171
Contact details of provider: Web page: http://www.interscience.wiley.com/jpages/1076-9307/

Order Information: Web: http://jws-edcv.wiley.com/jcatalog/JournalsCatalogOrder/JournalOrder?PRINT_ISSN=1076-9307

Keywords:

Other versions of this item:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Rachel Reeves & Michael Sawicki, 2005. "Do financial markets react to Bank of England communication?," Discussion Papers 15, Monetary Policy Committee Unit, Bank of England.
  2. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2006. "Market-based measures of monetary policy expectations," Working Paper Series 2006-04, Federal Reserve Bank of San Francisco.
  3. Ben S. Bernanke & Kenneth N. Kuttner, 2003. "What explains the stock market's reaction to Federal Reserve policy?," Staff Reports 174, Federal Reserve Bank of New York.
  4. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets," PIER Working Paper Archive 04-028, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Jun 2004.
  5. 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.
  6. P. Siklos, M. Bohl, 2006. "Policy Words and Policy Deeds: The ECB and the Euro," Working Papers eg0050, Wilfrid Laurier University, Department of Economics, revised 2006.
  7. Roberto Rigobon & Brian Sack, 2001. "Measuring the reaction of monetary policy to the stock market," Finance and Economics Discussion Series 2001-14, Board of Governors of the Federal Reserve System (U.S.).
  8. 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.
  9. Rasmus Fatum & Barry Scholnick, 2003. "Do Exchange Rates Respond to Day-to-Day Changes in Monetary Policy Expectations? Evidence from the Federal Funds Futures Market," EPRU Working Paper Series 03-18, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Aug 2003.
  10. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
  11. William Poole & Robert Rasche, 2000. "Perfecting the Market's Knowledge of Monetary Policy," Journal of Financial Services Research, Springer, vol. 18(2), pages 255-298, December.
  12. Courtenay, Roger & Clare, Andrew, 2001. "What can we learn about monetary policy transparency from financial market data?," Discussion Paper Series 1: Economic Studies 2001,06, Deutsche Bundesbank, Research Centre.
  13. Michael Ehrmann, 2000. "Comparing monetary policy transmission across European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(1), pages 58-83, March.
  14. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2005. "Stocks, Bonds, Money Markets and Exchange Rates: Measuring International Financial Transmission," NBER Working Papers 11166, National Bureau of Economic Research, Inc.
  15. 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.
  16. Lastrapes, W. D., 1998. "International evidence on equity prices, interest rates and money," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 377-406, June.
  17. Hayo, Bernd & Uhlenbrock, Birgit, 1999. "Industry effects of monetary policy in Germany," ZEI Working Papers B 14-1999, ZEI - Center for European Integration Studies, University of Bonn.
  18. Roberto Rigobon & Brian P. Sack, 2002. "The Impact of Monetary Policy on Asset Prices," NBER Working Papers 8794, National Bureau of Economic Research, Inc.
  19. Sellin, Peter, 2001. " Monetary Policy and the Stock Market: Theory and Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 15(4), pages 491-541, September.
  20. Michael Ehrmann & Marcel Fratzscher, 2004. "Equal size, equal role? interest rate interdependence between the euro area and the United States," International Finance Discussion Papers 800, Board of Governors of the Federal Reserve System (U.S.).
  21. Patelis, Alex D, 1997. " Stock Return Predictability and the Role of Monetary Policy," Journal of Finance, American Finance Association, vol. 52(5), pages 1951-72, December.
  22. Willem Thorbecke, 1998. "On Stock Market Returns and Monetary Policy," Macroeconomics 9812009, EconWPA.
  23. Kerstin Bernoth & Jürgen von Hagen, 2004. "The Euribor Futures Market: Efficiency and the Impact of ECB Policy Announcements," International Finance, Wiley Blackwell, vol. 7(1), pages 1-24, 03.
  24. Ehrmann, Michael & Fratzscher, Marcel, 2004. "Taking stock: monetary policy transmission to equity markets," Working Paper Series 0354, European Central Bank.
  25. J. Benson Durham, 2001. "The effect of monetary policy on monthly and quarterly stock market returns: cross-country evidence and sensitivity analyses," Finance and Economics Discussion Series 2001-42, Board of Governors of the Federal Reserve System (U.S.).
  26. Stefano Neri, 2004. "Monetary policy and stock prices: theory and evidence," Temi di discussione (Economic working papers) 513, Bank of Italy, Economic Research and International Relations Area.
  27. 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.
  28. Don Bredin & Stuart Hyde & Dirk Nitzsche & Gerard O'reilly, 2007. "UK Stock Returns and the Impact of Domestic Monetary Policy Shocks," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(5-6), pages 872-888.
  29. Vickers, John, 2000. "Monetary Policy and Asset Prices," Manchester School, University of Manchester, vol. 68(0), pages 1-22, Supplemen.
Full references (including those not matched with items on IDEAS)

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Blogs review: The Events Study methodology
    by ? in Bruegel blog on 2012-10-08 09:51:26
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window


Cited by:

  1. Kontonikas, Alexandros & MacDonald, Ronald & Saggu, Aman, 2012. "Stock Market Reaction to Fed Funds Rate Surprises: State Dependence and the Financial Crisis," SIRE Discussion Papers 2012-72, Scottish Institute for Research in Economics (SIRE).
  2. Pilar Abad & Helena Chuliá, 2013. "“European Government Bond Markets and Monetary Policy Surprises: Returns, Volatility and Integration”," IREA Working Papers 201325, University of Barcelona, Research Institute of Applied Economics, revised Dec 2013.
  3. Florackis, Chris & Kostakis, Alexandros & Kontonikas, Alexandros, 2011. "Transmission of macro-liquidity shocks to liquidity-sorted stock portfolios’ returns: The role of the financial crisis," SIRE Discussion Papers 2011-31, Scottish Institute for Research in Economics (SIRE).
  4. Kronick, Jeremy, 2014. "Monetary Policy Shocks from the EU and US: Implications for Sub-Saharan Africa," MPRA Paper 59416, University Library of Munich, Germany.
  5. Jan Hanousek & Evzen Kocenda, 2009. "Intraday Price Discovery in Emerging European Stock Markets," CERGE-EI Working Papers wp382, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  6. Guan-Ru Chen & Ming-Hung Wu, 2013. "How does Monetary Policy Influence Capital Markets? Using a Threshold Regression Model," Asia-Pacific Financial Markets, Springer, vol. 20(1), pages 31-47, March.
  7. Jan Hanousek & Evzen Kocenda & Ali M. Kutan, 2008. "The Reaction of Asset Prices to Macroeconomic Announcements in New EU Markets: Evidence from Intraday Data," CERGE-EI Working Papers wp349, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  8. Jan Hanousek & Evžen Kočenda, 2010. "Effect of Intraday Information Flow on the Emerging European Stock Markets," Politická ekonomie, University of Economics, Prague, vol. 2010(4), pages 435-457.
  9. Bredin, Don & Hyde, Stuart & Reilly, Gerard O., 2010. "Monetary policy surprises and international bond markets," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 988-1002, October.
  10. 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.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:ijf:ijfiec:v:14:y:2009:i:2:p:156-171. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.