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Central bank's money market operations and daily stock returns

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  • Radeef Chundakkadan
  • Subash Sasidharan

Abstract

The objective of this paper is to examine the relationship between the central bank's daily money market operations in the form of Term Repo and Term Reverse Repo operations on stock returns using daily data. Unlike earlier studies, we use two new monetary measures, namely, Repo Spread and Reverse Repo Spread. Controlling for firm‐specific factors and time dummies and addressing endogeneity issue, we show that the central bank's money market operations have a significant effect on daily returns. Further, we also observe that the inclusion of these monetary variables improves the prediction of the stock returns.

Suggested Citation

  • Radeef Chundakkadan & Subash Sasidharan, 2021. "Central bank's money market operations and daily stock returns," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 136-152, January.
    • Handle: RePEc:wly:ijfiec:v:26:y:2021:i:1:p:136-152
    DOI: 10.1002/ijfe.1781
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