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Monetary Shocks, Policy Tools And Financial Firm Stock Returns: Evidence From The 2008 Us Quantitative Easing

Author

Listed:
  • ALI ASHRAF

    (Department of Marketing & Finance, Frostburg State University, MD 21532, USA)

  • M. KABIR HASSAN

    (#x2020;Department of Economics & Finance, University of New Orleans, New Orleans, LA 70148, USA)

  • WILLIAM J. HIPPLER

    (#x2021;College of Business and Public Management, University of La Verne, La Verne, CA 91750, USA)

Abstract

We extend the work of Bernanke and Kuttner [(2005). What explains the stock market’s reaction to federal reserve policy? Journal of Finance, 60, 1221–1257] by examining the impact of monetary shocks and policy tools on aggregate stock returns as well as the stock returns of financial institutions during the recent period of quantitative easing (QE) in the US. Specially, we test for the effectiveness of a major non-conventional monetary policy tool, the use of special asset purchase programs by the Federal Reserve, in impacting the financial markets. Estimates from vector auto-regression (VAR) analyses show that the impact of both unexpected and expected monetary shocks on aggregate stock returns is magnified several times during periods of QE. In addition, traditional monetary policy tools, like the Federal Funds rate, have no impact on aggregate stock returns, neither leading up to, nor during QE, while our non-conventional policy measure does appear to have some impact. In an extension of our results, we find that unexpected monetary shocks have an increased marginal impact on the stock returns of financial firms during QE. In addition, the stock returns of financial institutions have significant reactions to both changes in non-conventional monetary policy tools and announcements surrounding non-conventional policy actions.

Suggested Citation

  • Ali Ashraf & M. Kabir Hassan & William J. Hippler, 2017. "Monetary Shocks, Policy Tools And Financial Firm Stock Returns: Evidence From The 2008 Us Quantitative Easing," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(01), pages 27-56, March.
    • Handle: RePEc:wsi:serxxx:v:62:y:2017:i:01:n:s0217590817400021
    DOI: 10.1142/S0217590817400021
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    References listed on IDEAS

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