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Does Monetary Policy Have Asymmetric Effects on Stock Returns?

Author

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  • Shiu-Sheng Chen

    (Department of Economics, National Taiwan University)

Abstract

This paper investigates whether monetary policy has asymmetric effects on stock returns using Markov-switching models. Different measures of the stance of monetary policy are adopted. Empirical evidence from monthly returns on the standard & Poor 500 (S&P 500) price index suggests that monetary policy has larger effects on stock returns in bear markets. Furthermore, it has been shown that contractionary monetary policy leads to a higher probability of switching to a recession in stock markets.

Suggested Citation

  • Shiu-Sheng Chen, 2005. "Does Monetary Policy Have Asymmetric Effects on Stock Returns?," Macroeconomics 0502001, University Library of Munich, Germany, revised 01 Feb 2005.
  • Handle: RePEc:wpa:wuwpma:0502001
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    Keywords

    Monetary Policy; Stock Returns; Markov-switching;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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