UK Stock returns & the impact of domestic monetary policy shocks

Donal Bredin, Stuart Hyde and Gerard O'Reilly

Centre for Financial Markets Working Papers from Research Repository, University College Dublin

Abstract: We investigate the influence of changes in UK monetary policy on UK stock returns and the possible reasons behind such a response. Firstly, we conduct an event study to assess the impact of unexpected changes in monetary policy on aggregate and sectoral stock returns. The decomposition of unexpected changes in the policy rate is based on futures markets data. Secondly, using a variance decomposition in the spirit of Campbell (1991) we attempt to identity the channels behind the response of stock returns to monetary policy surprises. The variance decomposition results indicate that the monetary policy shock leads to a persistent negative response in terms of future excess returns for a number of sectors.

Keywords: Monetary policy; Stock market; Interest rates; Monetary policy--Great Britain; Stock exchanges--Great Britain; Interest rates--Great Britain (search for similar items in EconPapers)
JEL-codes: E4 G1 (search for similar items in EconPapers)
Date: 2005-10
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http://hdl.handle.net/10197/1167 First version, 2005 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:rru:cfmwps:10197/1167

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