Is Fed Policy Still Relevant for Investors?

Posted: 5 Feb 2005

See all articles by C. Mitchell Conover

C. Mitchell Conover

University of Richmond - E. Claiborne Robins School of Business

Gerald R. Jensen

Northern Illinois University

Robert R. Johnson

Creighton University - College of Business Administration

Jeffrey M. Mercer

Texas Tech University - Department of Finance

Abstract

Thirty-eight years of U.S. data indicate that U.S. monetary policy continues to have a strong relationship with security returns. U.S. stock returns are consistently higher and less volatile when the Federal Reserve is following an expansive monetary policy. Furthermore, the monetary policy-related return patterns of companies considered to be most sensitive to changes in monetary conditions are much more pronounced than average patterns. Finally, the influence of U.S. monetary policy is global; international indexes have return patterns similar to those for the U.S. market. Overall, the evidence suggests that investment professionals should continue to consider monetary conditions when performing fundamental analysis of U.S. and international securities.

Keywords: Economics, Relationship of Economic Activity to the Investment Process, Portfolio Management, Equity Strategies

Suggested Citation

Conover, C. Mitchell and Jensen, Gerald and Johnson, Robert R. and Mercer, Jeffrey M., Is Fed Policy Still Relevant for Investors?. Available at SSRN: https://ssrn.com/abstract=661427

C. Mitchell Conover (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

Richmond, VA 23173
United States

Gerald Jensen

Northern Illinois University ( email )

Barsema Hall
Finance Department
DeKalb, IL 60115
United States
815-753-6399 (Phone)

Robert R. Johnson

Creighton University - College of Business Administration ( email )

United States
4342492805 (Phone)

Jeffrey M. Mercer

Texas Tech University - Department of Finance ( email )

Rawls College of Business Administration
Lubbock, TX 79409
United States
806-742-3365 (Phone)
806-742-3197 (Fax)

HOME PAGE: http://jmercer.ba.ttu.edu/

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