The Asymmetric Effects of Monetary Policy on Stock Market

Cheng Jiang ()
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Cheng Jiang: Department of Finance, Fox School of Business and Management, Temple University, Philadelphia PA 19122, USA

Quarterly Journal of Finance (QJF), 2018, vol. 08, issue 03, 1-27

Abstract: This paper shows that the effects of expansionary monetary policy on the U.S. stock market are asymmetric across different monetary policy phases and different stock market regimes. A Markov-switching dynamic factor model dates the periods of stock market regimes, and generates a new composite measure for overall stock market movements. A time-varying parameter analysis finds that an expansionary monetary policy such as an increase in monetary aggregates or a decrease in the Federal funds rate has positive impacts on stock returns only during the periods in which they are used as monetary policy targets by the Federal Reserve.

Keywords: Monetary policy; stock market; Markov-switching dynamic factor model; time-varying parameter analysis (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S2010139218500088

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