What Explains the Stock Market's Reaction to Federal Reserve Policy?
57 Pages Posted: 16 Apr 2004 Last revised: 5 Jun 2022
There are 2 versions of this paper
What Explains the Stock Market's Reaction to Federal Reserve Policy?
Date Written: April 2004
Abstract
This paper analyzes the impact of changes in monetary policy on equity prices, with the objectives both of measuring the average reaction of the stock market and also of understanding the economic sources of that reaction. We find that, on average, a hypothetical unanticipated 25-basis-point cut in the federal funds rate target is associated with about a one percent increase in broad stock indexes. Adapting a methodology due to Campbell (1991) and Campbell and Ammer (1993), we find that the effects of unanticipated monetary policy actions on expected excess returns account for the largest part of the response of stock prices.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Monetary Policy Surprises and Interest Rates: Evidence from the Fed Funds Futures Market
-
Monetary Policy Surprises and Interest Rates: Evidence from the Fed Funds Futures Markets
-
What Explains the Stock Market's Reaction to Federal Reserve Policy?
-
The Effect of Changes in the Federal Funds Rate Target on Market Interest Rates in the 1970s
By Timothy Cook and Thomas K. Hahn
-
The Impact of Monetary Policy on Asset Prices
By Brian P. Sack and Roberto Rigobon
-
The Impact of Monetary Policy on Asset Prices
By Brian P. Sack and Roberto Rigobon
-
Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets
By Torben G. Andersen, Clara Vega, ...
-
Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets
By Torben G. Andersen, Clara Vega, ...
-
Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets
By Torben G. Andersen, Clara Vega, ...
-
Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets
By Torben G. Andersen, Tim Bollerslev, ...