I would like to thank Han-Sheng Chen for research assistance and Marcel Fratzscher for providing me with Fed monetary policy data. Comments and guidance from Huntley Schaller, Kenneth D. West, and an anonymous referee are greatly appreciated. Any remaining errors are my own responsibility. This research is supported by a grant from the Program for Globalization Studies, Institute for Advanced Studies in Humanities and social Sciences, National Taiwan University (95R0064-AH03-03).
Does Monetary Policy Have Asymmetric Effects on Stock Returns?
Article first published online: 18 APR 2007
Journal of Money, Credit and Banking
Volume 39, Issue 2-3, pages 667–688, March–April 2007
How to Cite
CHEN, S.-S. (2007), Does Monetary Policy Have Asymmetric Effects on Stock Returns?. Journal of Money, Credit and Banking, 39: 667–688. doi: 10.1111/j.0022-2879.2007.00040.x
- Issue published online: 18 APR 2007
- Article first published online: 18 APR 2007
- Received March 22, 2005; and accepted in revised form December 7, 2005.
- monetary policy;
- stock returns;
This paper investigates whether monetary policy has asymmetric effects on stock returns using Markov-switching models. Different measures of a monetary policy stance are adopted. Empirical evidence from monthly returns on the Standard & Poor's 500 price index suggests that monetary policy has larger effects on stock returns in bear markets. Furthermore, it is shown that a contractionary monetary policy leads to a higher probability of switching to the bear-market regime.