IDEAS home Printed from https://ideas.repec.org/a/jfr/afr111/v3y2014i3p1.html
   My bibliography  Save this article

Overnight Policy Rate Changes and Stock Market Reactions –The Experience in Malaysia

Author

Listed:
  • Noor Azuddin Yakob
  • Yap Yih Tzeng
  • Carl B. McGowan, Jr

Abstract

This paper examines stock market reactions to changes in the overnight policy rate (OPR) by the Monetary Policy Committee (MPC) in Malaysia. The paper examines the effects of 44 Monetary Policy Committee meetings from January 2006 until December 2011. During this period the OPR has been revised upward six times, maintained at the same level for 35 times, and revised downward three times. The study fails to detect any significant market behavior in the days leading to and immediately after the announcement of the OPR is made. This implies that the stock market may have anticipated the information before the MPC meeting. Interestingly, the stock market seems to respond to the cut in the OPR judging by the higher mean daily return as well as lower standard deviation reported in the post-announcement period. In fact, prior to a reduction in the OPR, the stock market registers a negative mean daily return in the pre-announcement period. The mean daily return increases in the days after the OPR cut. The stock market seems to benefit from the downward revision of the OPR. Perhaps, the central bank can use this policy instrument as a means to stimulate the stock market.

Suggested Citation

  • Noor Azuddin Yakob & Yap Yih Tzeng & Carl B. McGowan, Jr, 2014. "Overnight Policy Rate Changes and Stock Market Reactions –The Experience in Malaysia," Accounting and Finance Research, Sciedu Press, vol. 3(3), pages 1-1, August.
    • Handle: RePEc:jfr:afr111:v:3:y:2014:i:3:p:1
    as

    Download full text from publisher

    File URL: https://www.sciedupress.com/journal/index.php/afr/article/download/5155/3018
    Download Restriction: no
    File URL: https://www.sciedupress.com/journal/index.php/afr/article/view/5155
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Roberto Rigobon & Brian Sack, 2003. "Measuring The Reaction of Monetary Policy to the Stock Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(2), pages 639-669.
    2. Rigobon, Roberto & Sack, Brian, 2004. "The impact of monetary policy on asset prices," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1553-1575, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Demir, İshak, 2014. "Monetary policy responses to the exchange rate: Empirical evidence from the ECB," Economic Modelling, Elsevier, vol. 39(C), pages 63-70.
    2. Jinjarak, Yothin, 2014. "Equity prices and financial globalization," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 49-57.
    3. Bu, Chunya & Rogers, John & Wu, Wenbin, 2021. "A unified measure of Fed monetary policy shocks," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 331-349.
    4. Ansgar Belke & Thorsten Polleit, 2006. "Monetary policy and dividend growth in Germany: long-run structural modelling versus bounds testing approach," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1409-1423.
    5. Nihar Shah, 2022. "Doubly heterogeneous monetary spillovers," International Finance, Wiley Blackwell, vol. 25(2), pages 126-150, August.
    6. Spargoli, Fabrizio & Zagaglia, Paolo, 2008. "The co-movements along the forward curve of natural gas futures : a structural view," Research Discussion Papers 26/2008, Bank of Finland.
    7. Farka, Mira, 2009. "The effect of monetary policy shocks on stock prices accounting for endogeneity and omitted variable biases," Review of Financial Economics, Elsevier, vol. 18(1), pages 47-55, January.
    8. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2011. "Stocks, bonds, money markets and exchange rates: measuring international financial transmission," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(6), pages 948-974, September.
    9. Jean-Yves Filbien & Fabien Labondance, 2012. "Reactions Des Marches D’Actions De La Zone Euro Aux Annonces Non Anticipees De La Bce," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(2), pages 179-204.
    10. Rigobon, Roberto & Sack, Brian, 2005. "The effects of war risk on US financial markets," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1769-1789, July.
    11. Lütkepohl, Helmut & Netšunajev, Aleksei, 2015. "Structural vector autoregressions with heteroskedasticity: A comparison of different volatility models," SFB 649 Discussion Papers 2015-015, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    12. Castelnuovo, Efrem & Nisticò, Salvatore, 2010. "Stock market conditions and monetary policy in a DSGE model for the U.S," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1700-1731, September.
    13. Jordi Galí & Luca Gambetti, 2015. "The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 233-257, January.
    14. Rahul Nath, 2018. "Equity Pricing New Keynesian Models with Nominal Rigidities and Investment," Economics Series Working Papers 850, University of Oxford, Department of Economics.
    15. Hoffmann, Andreas, 2009. "Fear of depression - Asymmetric monetary policy with respect to asset markets," MPRA Paper 17522, University Library of Munich, Germany.
    16. Pennings, Steven & Ramayandi, Arief & Tang, Hsiao Chink, 2015. "The impact of monetary policy on financial markets in small open economies: More or less effective during the global financial crisis?," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 60-70.
    17. Chudik, Alexander & Fratzscher, Marcel, 2011. "Identifying the global transmission of the 2007-2009 financial crisis in a GVAR model," European Economic Review, Elsevier, vol. 55(3), pages 325-339, April.
    18. Anna Pavlova & Roberto Rigobon, 2007. "Asset Prices and Exchange Rates," The Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1139-1180.
    19. Murat Duran & Refet Gurkaynak & Pinar Ozlu & Deren Unalmis, 2010. "TCMB Faiz Kararlarinin Piyasa Faizleri Ve Hisse Senedi Piyasalari Uzerine Etkisi," CBT Research Notes in Economics 1008, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    20. Chen, Zhengyang, 2019. "The Long-term Rate and Interest Rate Volatility in Monetary Policy Transmission," MPRA Paper 96339, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jfr:afr111:v:3:y:2014:i:3:p:1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sciedu Press (email available below). General contact details of provider: https://edirc.repec.org/data/cepflch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.