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Does Monetary Policy Have Asymmetric Effects on Stock Returns?

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  • SHIU‐SHENG CHEN

Abstract

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.

Suggested Citation

  • Shiu‐Sheng Chen, 2007. "Does Monetary Policy Have Asymmetric Effects on Stock Returns?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2‐3), pages 667-688, March.
    • Handle: RePEc:wly:jmoncb:v:39:y:2007:i:2-3:p:667-688
    DOI: 10.1111/j.0022-2879.2007.00040.x
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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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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