European Monetary Policy Surprises: The Aggregate and Sectoral Stock Market Response

Manchester Business School Working Paper No. 493

27 Pages Posted: 11 Jul 2007

See all articles by Don Bredin

Don Bredin

University College Dublin (UCD) - Department of Banking & Finance

Stuart Hyde

Alliance Manchester Business School - University of Manchester

Dirk Nitzsche

City University London - Sir John Cass Business School

Gerard O'Reilly

Central Bank & Financial Services Authority of Ireland

Date Written: 2007

Abstract

In this paper we investigate the stock market response to international monetary policy changes in the UK and Germany. Specifically, we analyse the impact of (un)expected changes in UK and German/Euro area policy rates on UK and German aggregate and sectoral equity returns in an event study. The decomposition of (un)expected changes in policy rates are based on futures markets. Overall, our results suggest that, UK monetary policy surprises have a significant negative influence on both aggregate and industry level returns in both countries. The influence of German/Euro area monetary policy shocks appears insignificant for both Germany and the UK.

Keywords: Monetary policy, stock market, interest rates

JEL Classification: E4, G1

Suggested Citation

Bredin, Don and Hyde, Stuart and Nitzsche, Dirk and O'Reilly, Gerard, European Monetary Policy Surprises: The Aggregate and Sectoral Stock Market Response (2007). Manchester Business School Working Paper No. 493, Available at SSRN: https://ssrn.com/abstract=999548 or http://dx.doi.org/10.2139/ssrn.999548

Don Bredin

University College Dublin (UCD) - Department of Banking & Finance ( email )

School of Business
Blackrock, Co. Dublin, 4
Ireland

HOME PAGE: http://www.ucd.ie/bankingfinance/staff_bredin.html

Stuart Hyde (Contact Author)

Alliance Manchester Business School - University of Manchester ( email )

Booth Street West
Mezzanine Floor, Crawford House
Manchester M15 6PB
United Kingdom
44 (0) 161 275 4017 (Phone)
44 (0) 161 275 4023 (Fax)

Dirk Nitzsche

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Gerard O'Reilly

Central Bank & Financial Services Authority of Ireland ( email )

P.O. 559 Dame Street
Dublin 2, D2
Ireland

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