Stock Returns and the U.S. Dollar: The Importance of Monetary Policy

20 Pages Posted: 28 Jun 2013 Last revised: 15 Jul 2015

J. Christopher Hughen

University of Denver - Daniels College of Business

Date Written: June 27, 2013

Abstract

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%.

Keywords: dollar, exchange rate, stock market, monetary policy, stock returns, stock prices

JEL Classification: F31, G11, G12, G15

Suggested Citation

Hughen, J. Christopher, Stock Returns and the U.S. Dollar: The Importance of Monetary Policy (June 27, 2013). Available at SSRN: https://ssrn.com/abstract=2286437 or http://dx.doi.org/10.2139/ssrn.2286437

John Christopher Hughen (Contact Author)

University of Denver - Daniels College of Business ( email )

2101 S. University Blvd
Denver, CO 80208-8951
United States
303-803-6171 (Phone)

HOME PAGE: http://www.hughen.com

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