Monetary policy and stock valuation: Structural VAR identification and size effects

A Kontonikas and Zivile Zekaite

Essex Finance Centre Working Papers from University of Essex, Essex Business School

Abstract: his paper examines the relationship between the US monetary policy and stock valuation using a structural VAR framework that allows for the simultaneous interaction between the federal funds rate and stock market developments based on the assumption of long-run monetary neutrality. The results confirm a strong, negative and significant monetary policy tightening effect on real stock prices. Furthermore, we provide evidence consistent with a delayed response of small stocks to monetary policy shocks relative to large stocks.

Keywords: Monetary policy; Stock market; Size effect; SVAR (search for similar items in EconPapers)
Date: 2017-11-02
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:esy:uefcwp:20605

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