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Stock market reaction to policy interventions

Franco Fiordelisi and Giuseppe Galloppo

The European Journal of Finance, 2018, vol. 24, issue 18, 1817-1834

Abstract: We analyse stock price reactions to the announcements of monetary and fiscal policy actions in 12 stock exchanges worldwide between 1 June 2007 and 30 June 2012. While past papers have analysed the effect of policy interventions focusing on monetary policy actions (e.g. Ricci 2015), our paper focuses on stock indices either capturing the whole stock market or various industries. By estimating abnormal stock reactions around the announcement date, we show that (1) stock industry indices react to policy interventions in a different manner than the broad stock index does; (2) stock returns react negatively to restriction measures for general and non-banking sector indices; and (3) stock reaction to expansionary measures was stronger at the beginning of the financial crisis.

Date: 2018
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DOI: 10.1080/1351847X.2018.1450278

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