Stock Returns and the U.S. Dollar: The Importance of Monetary Policy
20 Pages Posted: 28 Jun 2013 Last revised: 15 Jul 2015
Date Written: 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%.
Keywords: dollar, exchange rate, stock market, monetary policy, stock returns, stock prices
JEL Classification: F31, G11, G12, G15
Suggested Citation: Suggested Citation