Abstract

https://ssrn.com/abstract=2895997
 


 



Monetary Policy and the Stock Market: Time-Series Evidence


Andreas Neuhierl


University of Notre Dame - Department of Finance

Michael Weber


University of Chicago - Finance

November 24, 2016

CESifo Working Paper Series No. 6199

Abstract:     
We construct a slope factor from changes in federal funds futures of different horizons. Slope predicts stock returns at the weekly frequency: faster monetary policy easing positively predicts excess returns. Investors can achieve increases in weekly Sharpe ratios of 20% conditioning on the slope factor. The tone of speeches by the FOMC chair correlates with the slope factor. Slope predicts changes in future interest rates and forecast revisions of professional forecasters. Our findings show that the path of future interest rates matters for asset prices, and monetary policy affects asset prices throughout the year and not only at FOMC meetings.

Number of Pages in PDF File: 89

Keywords: return predictability, policy speeches, expected returns, macro news

JEL Classification: E310, E430, E440, E520, E580, G120


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Date posted: January 10, 2017  

Suggested Citation

Neuhierl, Andreas and Weber, Michael, Monetary Policy and the Stock Market: Time-Series Evidence (November 24, 2016). CESifo Working Paper Series No. 6199. Available at SSRN: https://ssrn.com/abstract=2895997

Contact Information

Andreas Neuhierl
University of Notre Dame - Department of Finance ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
Michael Weber (Contact Author)
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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