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Monetary Policy and the Stock Market: Time Series Evidence

Michael Weber () and Andreas Neuhierl
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Andreas Neuhierl: University of Notre Dame

No 304, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We construct a slope factor from changes in federal funds futures of different horizons. Slope predicts stock returns at the weekly frequency: faster monetary policy easing positively predicts excess returns. Investors can achieve increases in weekly Sharpe ratios of 20% conditioning on the slope factor. The tone of speeches by the FOMC chair correlates with the slope factor. Slope predicts changes in future interest rates and forecast revisions of professional forecasters. Our findings show that the path of future interest rates matters for asset prices, and monetary policy affects asset prices throughout the year and not only at FOMC meetings.

New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2017
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https://economicdynamics.org/meetpapers/2017/paper_304.pdf (application/pdf)

Related works:
Working Paper: Monetary Policy and the Stock Market: Time-Series Evidence (2016) Downloads
Working Paper: Monetary Policy and the Stock Market: Time-Series Evidence (2016) Downloads
Working Paper: Monetary Policy and the Stock Market: Time-Series Evidence (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:304

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