Investor Sentiment and the Stock Market’s Reaction to Monetary Policy

33 Pages Posted: 8 Jul 2009 Last revised: 8 Jun 2011

See all articles by Alexander Kurov

Alexander Kurov

West Virginia University - College of Business & Economics

Date Written: July 13, 2009

Abstract

This paper shows that monetary policy decisions have a significant effect on investor sentiment. The effect of monetary news on sentiment depends on market conditions (bull versus bear market). We also find that monetary policy actions in bear market periods have a larger effect on stocks that are more sensitive to changes in investor sentiment and credit market conditions. Overall, the results show that investor sentiment plays a significant role in the effect of monetary policy on the stock market.

Keywords: Monetary policy, Stock market, Investor sentiment

JEL Classification: E44, E52, E58, G14, G18

Suggested Citation

Kurov, Alexander, Investor Sentiment and the Stock Market’s Reaction to Monetary Policy (July 13, 2009). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1430599

Alexander Kurov (Contact Author)

West Virginia University - College of Business & Economics ( email )

P.O. Box 6025
Morgantown, WV 26506
United States

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