More on Monetary Policy and Stock Price Returns

Recent research suggests a persistent empirical relation between U.S. monetary policy and stock returns since the mid-1980s. The findings seem questionable and incomplete, however, for at least three reasons. First, the results are sensitive to sample selection. Second, this research does not distin...

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Bibliographic Details
Published in:Financial analysts journal 2005-07, Vol.61 (4), p.83-90
Main Author: Durham, J. Benson
Format: Article
Language:English
Subjects:
Consumer economics
Correlation
Correlation analysis
Economic expectations
Economics
Efficient markets
Expectation
Federal funding
Federal Reserve monetary policy
Financial economics
Futures
Futures contracts
Hypotheses
Investments
Investors
Market analysis
Monetary policy
P values
Policy analysis
Prices
Rates of return
Regression coefficients
Securities markets
Statistical models
Statistical significance
Stock prices
Stock returns
Studies
Time series
U.S.A
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Summary:Recent research suggests a persistent empirical relation between U.S. monetary policy and stock returns since the mid-1980s. The findings seem questionable and incomplete, however, for at least three reasons. First, the results are sensitive to sample selection. Second, this research does not distinguish between anticipated and unanticipated monetary policy decisions. Third, such analysis does not satisfactorily consider that returns and policy are probably determined simultaneously because prices contain information about market expectations for the economy and, in turn, policy. Together, these issues suggest that investors are unlikely to profit from strategies based on past or anticipated Federal Reserve decisions.
ISSN:0015-198X
1938-3312
DOI:10.2469/faj.v61.n4.2745