Monetary policy shocks and stock returns: evidence from the British market

Gregoriou, A., Kontonikas, A., MacDonald, R. and Montagnoli, A. (2009) Monetary policy shocks and stock returns: evidence from the British market. Financial Markets and Portfolio Management, 23(4), pp. 401-410. (doi:10.1007/s11408-009-0113-2)

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Abstract

This paper examines the impact of anticipated and unanticipated interest rate changes on aggregate and sectoral stock returns in the United Kingdom. The monetary policy shock is generated from the change in the 3-month sterling LIBOR futures contract. Results from time-series and panel analysis indicate an important structural break in the relationship between stock returns and monetary policy shifts. Specifically, whereas before the credit crunch, the stock market response to both expected and unexpected interest rate changes is negative and significant; the relationship becomes positive during the credit crisis. The latter finding highlights the inability, so far, of monetary policymakers to reverse, via interest rate cuts, the negative trend observed in stock prices since the onset of the credit crisis.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Kontonikas, Professor Alexandros and MacDonald, Professor Ronald
Authors: Gregoriou, A., Kontonikas, A., MacDonald, R., and Montagnoli, A.
Subjects:H Social Sciences > HB Economic Theory
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Financial Markets and Portfolio Management
ISSN:1934-4554
ISSN (Online):1555-497X
Published Online:13 October 2009

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