Stock Returns and the U.S. Dollar: The Importance of Monetary Policy
J. Christopher Hughen
University of Denver - Daniels College of Business
June 27, 2013
The relation between the dollar’s value and stock prices is controversial. Our analysis shows that returns were 2.6 times higher when the dollar was trending up versus down. Our key insight is that dollar trends should be evaluated in light of monetary policy. While stocks returns have been relatively high when the dollar was appreciating, the difference in returns under tight and loose monetary policies was 9%. When the dollar was in a downtrend, the difference in stocks returns under different monetary policies was 17%.
Number of Pages in PDF File: 20
Keywords: dollar, exchange rate, stock market, monetary policy, stock returns, stock prices
JEL Classification: F31, G11, G12, G15
Date posted: June 28, 2013 ; Last revised: July 15, 2015
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