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European Monetary Policy Surprises: The Aggregate and Sectoral Stock Market Response

  • Bredin, Don

    (University College Dublin)

  • Hyde, Stuart

    (University of Manchester)

  • O'Reilly, Gerard

    (Central Bank and Financial Services Authority of Ireland)

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 UK and German/euro area policy rates on UK and German aggregate and sectoral stock returns in an event study. The decomposition of the (un)expected changes in policy rates are based on futures markets. Overall, our results suggest that, UK monetary policy surprises have a significant negative influence on both aggregate and industry level stock returns in both the UK and Germany. The influence of German/Euro area monetary policy shocks appears insignificant for both countries.

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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 10/RT/05.

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Length: 25 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:cbi:wpaper:10/rt/05
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  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.
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  16. Refet Gürkaynak & Brian Sack, 2005. "Do Actions Speak Louder Than Words?The Response of Asset Prices to Monetary Policy Actions and Statements," Computing in Economics and Finance 2005 323, Society for Computational Economics.
  17. William Poole & Robert H. Rasche, 2000. "Perfecting the market's knowledge of monetary policy," Working Papers 2000-010, Federal Reserve Bank of St. Louis.
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  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.
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