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Money Supply Announcements And Interest Sensitive Stocks

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  • Jay Prag

Abstract

Much of the money announcement literature provides evidence that there is a significant response of nominal interest rates to unexpected changes in the money stock, especially in the October 1979‐October 1982 period. These money announcements provide a proxy for unexpected interest rate changes which can be used in a novel test for the interest sensitivity of stocks. Using the response of disaggregated stock price data to money announcements, we reach two major conclusions. First, that the interest rate response observed in the money announcement literature was predominantly a change in real rates. Second, an unusual group of stocks are excessively sensitive to these real rate changes and many groups of stocks that might logically have been expected to be sensitive are not.

Suggested Citation

  • Jay Prag, 1994. "Money Supply Announcements And Interest Sensitive Stocks," Review of Financial Economics, John Wiley & Sons, vol. 3(2), pages 130-140, March.
    • Handle: RePEc:wly:revfec:v:3:y:1994:i:2:p:130-140
    DOI: 10.1002/j.1873-5924.1994.tb00577.x
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    References listed on IDEAS

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    1. Grossman, Jacob, 1981. "The "Rationality" of Money Supply Expectations and the Short-Run Response of Interest Rates to Monetary Surprises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 409-424, November.
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    7. repec:bla:jfinan:v:43:y:1988:i:4:p:965-81 is not listed on IDEAS
    8. Nichols, Donald A & Small, David H & Webster, Charles E, Jr, 1983. "Why Interest Rates Rise When an Unexpectedly Large Money Stock Is Announced," American Economic Review, American Economic Association, vol. 73(3), pages 383-388, June.
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