The Money Supply and the Stock Market
7 Pages Posted: 13 Oct 2005
This article examines several stock market trading rules that use publicly available money supply data. None of the rules predicts the future stock market behavior and none provides returns in excess of a comparison buy-and-hold rule. Stock returns are related to current and future money supply changes, however. That is, the stock market anticipates upcoming changes in money supply. Linear regression models that allow foresight of future money supply are able to beat the market. This shows that regression models are powerful enough to produce abnormal returns - if they have non-publicly available information.
Keywords: Efficient market, money supply, trading rules
JEL Classification: G11, G14
Suggested Citation: Suggested Citation