Money and Stock Prices

58 Pages Posted: 23 May 2006

See all articles by Michael S. Rozeff

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics


This paper examines stock market efficiency with respect to money supply data by testing (1) regression models of stock returns on monetary variables and (2) trading rules based on money supply data. The evidence indicates no meaningful lag in the effect of monetary policy on the stock market and that no profitable trading rules using past values of the money supply exist. Therefore this evidence is consistent with the efficient market model. Current security returns incorporate all information contained in past money supply data and, in addition, appear to anticipate future changes in the money supply. A number of previous studies have concluded that lags exist and can be used in profitable trading rules. Analysis of these studies demonstrates that for a variety of reasons the evidence in these past studies does not sustain such conclusions.

Keywords: efficient market, money supply, trading rules

JEL Classification: E51, G14

Suggested Citation

Rozeff, Michael S., Money and Stock Prices. Journal of Financial Economics, Vol. 1, 1974. Available at SSRN:

Michael S. Rozeff (Contact Author)

SUNY at Buffalo - Department of Financial & Managerial Economics ( email )

Buffalo, NY 14260
United States

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