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Monetary Policy and Stock Market Valuation

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  • Olli-Matti Laine

    (Bank of Finland, Tampere University)

Abstract

This paper estimates the effect of monetary policy on the term structure of stock market risk premia. The implied stock market risk premia are obtained using analysts' dividend forecasts and dividend future prices. The effect of monetary policy on risk premia is analyzed using local projections and VAR models. According to the results, monetary policy easing raises the average risk premium. The effect is driven by a rise in long-horizon risk premia.

Suggested Citation

  • Olli-Matti Laine, 2023. "Monetary Policy and Stock Market Valuation," International Journal of Central Banking, International Journal of Central Banking, vol. 19(1), pages 365-416, March.
    • Handle: RePEc:ijc:ijcjou:y:2023:q:1:a:8
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    Cited by:

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    2. Hermans, Lieven & Kostka, Thomas & Vassallo, Danilo, 2023. "Asset allocation and risk taking under different interest rate regimes," Working Paper Series 2803, European Central Bank.
    3. Laine, Olli-Matti, 2022. "The term structure of equity premia and the macroeconomy: some results," Economics Letters, Elsevier, vol. 216(C).
    4. Laine, Olli-Matti & Nelimarkka, Jaakko, 2023. "Assessing targeted longer-term refinancing operations: Identification through search intensity," Bank of Finland Research Discussion Papers 13/2023, Bank of Finland.

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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