On Stock Market Returns and Monetary Policy

Willem Thorbecke
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Willem Thorbecke: The Jerome Levy Economics Institute

Macroeconomics from EconWPA

Abstract: Boudoukh, Richardson, and Whitelaw (BRW) presented theoretical and empirical evidence explaining the expected inflation/stock return correlation. In concluding they stated that whether monetary policy has real effects is an open question. This paper addresses this question by examining how BRW's industry stock return data respond to monetary policy shocks. Monetary policy is measured by innovations in the federal funds rate and nonborrowed reserves, by narrative indicators, and by an event study of Federal Reserve policy changes. In every case the evidence indicates that expansionary policy increases ex-post stock returns. Results from estimating a multi-factor model also indicate that exposure to monetary policy increases an asset's ex-ante return.

JEL-codes: E (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon
Date: 1998-12-15
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 35; figures: included
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http://129.3.20.41/eps/mac/papers/9812/9812009.pdf (application/pdf)

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