The Impact of Money Supply and Interest Rates on Stock Prices: Insights from Two New Behavioral Experiments and a Proposal for a New Price to Earnings Ratio

Christian A. Conrad

International Journal of Economics and Finance, 2026, vol. 18, issue 4, 66

Abstract: This paper examines the impact of monetary expansion and interest rate changes on stock market investment behavior through two behavioral experiments conducted with student as participants, using MS Teams and Excel. The experimental results indicate that increases in the money supply and reductions in interest rates lead to higher share prices. These findings support the hypothesis that an aggressive monetary policy—characterized by an expansive money supply and low, zero, or even negative interest rates—can contribute to the formation of financial bubbles in equity markets. From this perspective, central banks should exercise caution in their interest rate and monetary policy interventions. To reduce the risk of a market crash, any exit from such policies should be implemented gradually.

Date: 2026
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