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Stock Market Reactions To Monetary Policy Shocks
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Book Synopsis Stock Market Reactions to Monetary Policy Shocks by : Jun Peng Zeng
Download or read book Stock Market Reactions to Monetary Policy Shocks written by Jun Peng Zeng and published by LAP Lambert Academic Publishing. This book was released on 2011-05 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is important for both the monetary policy makers and investors to understand the impact of monetary policy shocks to real asset prices. This paper used the event-study method to test the intraday effects of monetary policy shocks on Australian stock market return in different dimension. The results show that a 25-basis-point rate cut target surprise is associated with 0.62% to 0.7% increase to the whole Australian stock market index. The results of industry indexes show that the industry indexes react differently to monetary policy shocks and path surprise is never significant in all event windows. This paper also tested the speed of stock market reacting to monetary policy shocks. The results suggest that all stock market indexes stop reacting to monetary policy shock after 90 to 120 minutes the monetary policy decision is announced. Lastly, the study of individual stocks shows that the size and market to book ratio factors do not affect magnitude of individual stock reaction to monetary policy shock.
Book Synopsis Identifying the Interdependence Between US Monetary Policy and the Stock Market by : Hilde C. Bjørnland
Download or read book Identifying the Interdependence Between US Monetary Policy and the Stock Market written by Hilde C. Bjørnland and published by . This book was released on 2010 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate the interdependence between US monetary policy and the S&P 500 using structural VAR methodology. A solution is proposed to the simultaneity problem of identifying monetary and stock price shocks by using a combination of short-run and long-run restrictions that maintains the qualitative properties of a monetary policy shock found in the established literature (CEE 1999). We find great interdependence between interest rate setting and stock prices. Stock prices immediately fall by 1.5 per cent due to a monetary policy shock that raises the federal funds rate by ten basis points. A stock price shock increasing stock prices by one per cent leads to an increase in the interest rate of five basis points. Stock price shocks are orthogonal to the information set in the VAR model and can be interpreted as non-fundamental shocks. We attribute a major part of the surge in stock prices at the end of the 1990s to these non-fundamental shocks.
Book Synopsis Measuring the Reaction of Monetary Policy to the Stock Market by : Roberto Rigobón
Download or read book Measuring the Reaction of Monetary Policy to the Stock Market written by Roberto Rigobón and published by . This book was released on 2001 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Movements in the stock market can have a significant impact on the macroeconomy and are therefore likely to be an important factor in the determination of monetary policy. However, little is known about the magnitude of the Federal Reserve's reaction to the stock market. One reason is that it is difficult to estimate the policy reaction because of the simultaneous response of equity prices to interest rate changes. This paper uses an identification technique based on the heteroskedasticity of stock market returns to identify the reaction of monetary policy to the stock market. The results indicate that monetary policy reacts significantly to stock market movements, with a 5% rise (fall) in the S & P 500 index increasing the likelihood of a 25 basis point tightening (easing) by about a half. This reaction is roughly of the magnitude that would be expected from estimates of the impact of stock market movements on aggregate demand. Thus, it appears that the Federal Reserve systematically responds to stock price movements only to the extent warranted by their impact on the macroeconomy.
Book Synopsis State-Dependent Stock Market Reactions to Monetary Policy by : Troy Davig
Download or read book State-Dependent Stock Market Reactions to Monetary Policy written by Troy Davig and published by . This book was released on 2013 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a test of the response of stock prices to Federal Reserve policy shocks using a Markov-switching framework. The framework endogenously identifies two distinct regimes. The first is a state where the Samp;P 500 index exhibits a significantly negative response to unexpected changes in the federal funds target in the thirty minute window bracketing FOMC announcements, a result consistent with previous work. However, the model identifies a second regime from September 1998 to September 2002, where the response of stock prices to policy shocks is insignificant and more volatile relative to the other regime.
Book Synopsis Stock Prices and Monetary Policy by : Paul De Grauwe
Download or read book Stock Prices and Monetary Policy written by Paul De Grauwe and published by CEPS. This book was released on 2008 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: The question of whether central banks should target stock prices so as to prevent bubbles and crashes from occurring has been hotly debated. This paper analyses this question using a behavioural macroeconomic model. This model generates bubbles and crashes. It analyses how 'leaning against the wind' strategies, which aim to reduce the volatility of stock prices, can help in reducing volatility of output and inflation. We find that such policies can be effective in reducing macroeconomic volatility, thereby improving the trade-off between output and inflation variability. The strength of this result, however, depends on the degree of credibility of the inflation-targeting regime. In the absence of such credibility, policies aiming at stabilising stock prices do not stabilise output and inflation.
Book Synopsis U.S. Monetary Shocks and Global Stock Prices by : Mr.Luc Laeven
Download or read book U.S. Monetary Shocks and Global Stock Prices written by Mr.Luc Laeven and published by International Monetary Fund. This book was released on 2010-12-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies how U.S. monetary policy affects global stock prices. We find that global stock prices respond strongly to changes in U.S. interest rate policy, with stock prices increasing (decreasing) following unexpected monetary loosening (tightening). This impact is more pronounced for sectors that depend on external financing, and for countries that are more integrated with the global financial market. These findings suggest that financial frictions play an important role in the transmission of monetary policy, and that U.S. monetary policy influences global capital allocation.
Book Synopsis Liquidity, Markets and Trading in Action by : Deniz Ozenbas
Download or read book Liquidity, Markets and Trading in Action written by Deniz Ozenbas and published by Springer Nature. This book was released on 2022 with total page 111 pages. Available in PDF, EPUB and Kindle. Book excerpt: This open access book addresses four standard business school subjects: microeconomics, macroeconomics, finance and information systems as they relate to trading, liquidity, and market structure. It provides a detailed examination of the impact of trading costs and other impediments of trading that the authors call rictions It also presents an interactive simulation model of equity market trading, TraderEx, that enables students to implement trading decisions in different market scenarios and structures. Addressing these topics shines a bright light on how a real-world financial market operates, and the simulation provides students with an experiential learning opportunity that is informative and fun. Each of the chapters is designed so that it can be used as a stand-alone module in an existing economics, finance, or information science course. Instructor resources such as discussion questions, Powerpoint slides and TraderEx exercises are available online.
Book Synopsis Understanding the Stock Market's Response to Monetary Policy Shocks by : Johann Scharler
Download or read book Understanding the Stock Market's Response to Monetary Policy Shocks written by Johann Scharler and published by . This book was released on 2004 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Stock Market's Reaction to Monetary Policy and Macroeconomic Cyclical Variation by :
Download or read book The Stock Market's Reaction to Monetary Policy and Macroeconomic Cyclical Variation written by and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The monetary policy can affect the economy through the monetary transmission mechanism. Two channels that the monetary policy can affect the economy via stock prices are through a credit channel in which the change in short term policy rate will affect the companies' cost of borrowings as well as abilities to access source of funds and a further result in companies' return and through an asset price channel in which the change in policy rate can affect demand for stocks and further the stock return. This study analyzes the impact of unanticipated changes in monetary policy in Thailand on the monthly SET index return and firm individual stock return during business cycles. I find that response of monthly SET index return to monetary surprise is not statistically significant; in contrast the reaction of most individual firms' returns give significant result. These findings prove that there are some firms that react strongly negative to monetary surprise. Reactions of these firms lead to significant response in firm-level data. I also find evidence supporting a credit channel of monetary policy transmission for overall stock price but I do not find significant cyclical variation in the impact of monetary policy on individual firm's returns. Notwithstanding, the behavior of countercyclical demand for credit can help to explain the result. However, both SET index returns and unexpected changes in policy rate have a negative relationship as stated in the asset price channel of monetary policy transmission. Moreover, I find a strong negative response of stock return of firms which are classified to be financially constrained firms but a little evidence which show that stock returns of those firms are more affected to monetary shocks compare to firms with non-financially constrained firms.
Book Synopsis The Effects of Monetary Policy on Stock Market Bubbles by : Jordi Galí
Download or read book The Effects of Monetary Policy on Stock Market Bubbles written by Jordi Galí and published by . This book was released on 2014 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate the response of stock prices to exogenous monetary policy shocks using a vector-autoregressive model with time-varying parameters. Our evidence points to protracted episodes in which, after a short-run decline, stock prices increase persistently in response to an exogenous tightening of monetary policy. That response is clearly at odds with the "conventional" view on the effects of monetary policy on bubbles, as well as with the predictions of bubbleless models. We also argue that it is unlikely that such evidence be accounted for by an endogenous response of the equity premium to the monetary policy shocks.
Book Synopsis Market Power and Monetary Policy Transmission by : Mr. Romain A Duval
Download or read book Market Power and Monetary Policy Transmission written by Mr. Romain A Duval and published by International Monetary Fund. This book was released on 2021-07-09 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that firms’ market power dampens the response of their output to monetary policy shocks, using firm-level data for the United States and a large cross-country firm-level dataset for 14 advanced economies. The estimated impact of a firm’s markup on its response to a monetary policy shock is large enough to materially affect monetary policy transmission. We also find some evidence that the role of markup in monetary policy transmission, while independent from other channels, is greater for firms whose characteristics — notably size and age — are likely to be associated with greater financial constraints. We rationalize these findings through a simple partial equilibrium model in which borrowing constraints amplify disproportionately low-markup firms’ responses to changes in interest rates.
Book Synopsis News and Monetary Shocks at a High Frequency by : Mr.Troy Matheson
Download or read book News and Monetary Shocks at a High Frequency written by Mr.Troy Matheson and published by International Monetary Fund. This book was released on 2014-09-12 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a simple approach to identify economic news and monetary shocks at a high frequency. The approach is used to examine financial market developments in the United States following the Federal Reserve’s May 22, 2013 taper talk suggesting that it would begin winding down its quantitative easing program. Our findings show that the sharp rise in 10-year Treasury bond yields immediately after the taper talk was largely due to monetary shocks, with positive economic news becoming increasingly important in subsequent months.
Book Synopsis Regional Aspects of Monetary Policy in Europe by : Jürgen von Hagen
Download or read book Regional Aspects of Monetary Policy in Europe written by Jürgen von Hagen and published by Springer Science & Business Media. This book was released on 2013-04-17 with total page 331 pages. Available in PDF, EPUB and Kindle. Book excerpt: Monetary union has dawned in Europe. Now that the common currency is a reality, questions concerning the practical conduct of monetary policy in the European Monetary Union (EMU) are moving to the forefront of the policy debate. Among these, one of the most critical is how the new monetary union will cope with the large heterogeneity of its member economies. Given the large differences in economic and financial structures among the EMU member states, monetary policy is likely to affect different member economies in different ways. Regional Aspects of Monetary Policy in Europe collects the proceedings of an international conference held at the Center for European Integration Studies of the University of Bonn, dedicated to this issue. The contributions to this conference fall into two parts. The first part consists of empirical and theoretical studies of the regional effects of monetary policy in heterogeneous monetary unions. The second part consists of papers analyzing the political economy of monetary policy in a monetary union of heterogeneous regions or member states. The papers all support the conclusion that regional differences in the responses to a common monetary policy will make European monetary policy especially difficult in the years to come. Such differences arise from a variety of sources, and they cannot be expected to be mere teething troubles that will disappear after a while. Even if they were ignored in the run-up to the EMU, Europe's central bankers and economic policy makers will have to learn how to cope with such differences in the future.
Book Synopsis Macroeconomic Cycles and the Stock Market's Reaction to Monetary Policy by : Arabinda Basistha
Download or read book Macroeconomic Cycles and the Stock Market's Reaction to Monetary Policy written by Arabinda Basistha and published by . This book was released on 2012 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines cyclical variation in the effect of Fed policy on the stock market. We find a much stronger response of stock returns to unexpected changes in the Federal funds target rate in recession and in tight credit market conditions. Using firm-level data, we also show that firms that face financial constraints are more affected by monetary shocks in tight credit conditions than the relatively unconstrained firms. Overall, the results are consistent with the credit channel of monetary policy transmission.
Book Synopsis Deciphering Monetary Policy Shocks by : Phillipp Gnan
Download or read book Deciphering Monetary Policy Shocks written by Phillipp Gnan and published by . This book was released on 2022 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: We decipher monetary policy shocks by directly connecting them to the stance a central bank expresses in its communication about different topics. To measure topic-specific central bank stances, we apply textual analysis techniques to press conference statements of the European Central Bank (ECB). Using three sets of shocks established in the literature, based on either high-frequency market reactions in single interest rates, the entire term structure, or the joint response in interest rates and stock prices, we find that markets distinctively react to news on the topics rate guidance, economic activity, and financial and monetary conditions. Likewise, responses in sovereign yield spreads and exchange rates can be directly linked to specific topics. Our findings provide validation for price-based monetary policy shocks used in numerous studies in monetary economics and asset pricing. They should also prove useful for the optimal design of policy communication.
Book Synopsis The Impact of Inflation and Monetary Policy Shocks on Stock Market Performance in Zimbabwe by : Mkhululi Ncube
Download or read book The Impact of Inflation and Monetary Policy Shocks on Stock Market Performance in Zimbabwe written by Mkhululi Ncube and published by GRIN Verlag. This book was released on 2024-05-16 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2023 in the subject Economics - Finance, grade: Distinction, National University of Science & Technology Zimbabwe (Finance), language: English, abstract: This study examines the impact of inflation and monetary policy shocks on stock market performance in Zimbabwe from 2000 to 2022. The study analyzes the relationship between different variables' regression using data obtained from the Zimbabwe Stock Exchange (ZSE) returns, inflation rates obtained from the Zimbabwe National Statistics Agency (ZIMSTAT), and interest rates obtained from the Reserve Bank of Zimbabwe. In this regression, ZSE returns are the dependent variable while inflation and interest rates are the independent variables. The research findings suggest that inflation has a negative impact, while monetary policy shocks have a positive impact on stock market performance in Zimbabwe. The study finds that inflation has a significant and persistent negative effect on stock market returns, with a one standard deviation shock in inflation leading to a significant decline in stock market returns. Moreover, the study identifies that monetary policy shocks, such as changes in interest rates, have a significant impact on stock market returns, but the effect is less pronounced compared to inflation in Zimbabwe. Furthermore, the study examines the transmission channels through which monetary policy shocks affect the stock market in Zimbabwe. The results suggest that changes in interest rates affect the stock market mainly through their impact on inflation expectations and exchange rates. This highlights the importance of considering both monetary and macroeconomic factors when analyzing the impact of monetary policy on the stock market in Zimbabwe. The study concludes that high inflation rates and frequent monetary policy interventions have a detrimental effect on stock market performance in Zimbabwe. The findings of this research are relevant to investors, policymakers, and analysts who are interested in understanding the relationship between inflation, monetary policy, and stock market performance in Zimbabwe. The study also analyzed the impact of GDP and exchange rate as control variables on stock market performance. The results suggested that changes in exchange rates have a negative impact on stock market returns GDP have a negative impact. The joint impact of inflation and monetary policy shocks was also found to be significant, indicating that both variables affect stock returns.
Book Synopsis Portfolio Selection and Asset Pricing by : Shouyang Wang
Download or read book Portfolio Selection and Asset Pricing written by Shouyang Wang and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 260 pages. Available in PDF, EPUB and Kindle. Book excerpt: In our daily life, almost every family owns a portfolio of assets. This portfolio could contain real assets such as a car, or a house, as well as financial assets such as stocks, bonds or futures. Portfolio theory deals with how to form a satisfied portfolio among an enormous number of assets. Originally proposed by H. Markowtiz in 1952, the mean-variance methodology for portfolio optimization has been central to the research activities in this area and has served as a basis for the development of modem financial theory during the past four decades. Follow-on work with this approach has born much fruit for this field of study. Among all those research fruits, the most important is the capital asset pricing model (CAPM) proposed by Sharpe in 1964. This model greatly simplifies the input for portfolio selection and makes the mean-variance methodology into a practical application. Consequently, lots of models were proposed to price the capital assets. In this book, some of the most important progresses in portfolio theory are surveyed and a few new models for portfolio selection are presented. Models for asset pricing are illustrated and the empirical tests of CAPM for China's stock markets are made. The first chapter surveys ideas and principles of modeling the investment decision process of economic agents. It starts with the Markowitz criteria of formulating return and risk as mean and variance and then looks into other related criteria which are based on probability assumptions on future prices of securities.
