Monetary Policy and Stock Market Valuation

International Journal of Central Banking, forthcoming

54 Pages Posted: 27 Oct 2021

Multiple version iconThere are 2 versions of this paper

Date Written: October 26, 2021

Abstract

This paper estimates the effect of monetary policy on the term structure of stock market risk premia. The implied stock market risk premia are obtained using analysts’ dividend forecasts and dividend future prices. The effect of monetary policy on risk premia is analysed using local projections and VAR models. According to the results, monetary policy easing raises the average risk premium. The effect is driven by a rise in long-horizon risk premia.

Keywords: Monetary policy, Stock market, Equity premium

JEL Classification: E52, G12

Suggested Citation

Laine, Olli-Matti, Monetary Policy and Stock Market Valuation (October 26, 2021). International Journal of Central Banking, forthcoming, Available at SSRN: https://ssrn.com/abstract=3950239

Olli-Matti Laine (Contact Author)

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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