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Asset price reactions to RPI announcements

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  • M A S Joyce
  • V Read

Abstract

UK asset price reactions to RPI announcements are examined from the early 1980s up to April 1997. Announcements are decomposed into their expected and unexpected components using survey data on inflation expectations. Asset prices do not appear to respond to the expected component of announcements, consistent with the predictions of the efficient markets hypothesis. The main sensitivity to inflation news appears in government bond prices, and the results are consistent with the 1992-97 inflation targeting regime being not fully credible, though its credibility increased over time.

Suggested Citation

  • M A S Joyce & V Read, 1999. "Asset price reactions to RPI announcements," Bank of England working papers 94, Bank of England.
    • Handle: RePEc:boe:boeewp:94
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    References listed on IDEAS

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    Cited by:

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    2. Francisco JAREÑO & Marta TOLENTINO & María de la O GONZÁLEZ, 2018. "The Us Stock Market At Sector Level: Inflation News, 1990-2013," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 18(1), pages 73-86.
    3. Reinhold Heinlein & Gabriele M. Lepori, 2022. "Do financial markets respond to macroeconomic surprises? Evidence from the UK," Empirical Economics, Springer, vol. 62(5), pages 2329-2371, May.
    4. D Büttner & B. Hayo, 2012. "EMU-related news and financial markets in the Czech Republic, Hungary and Poland," Applied Economics, Taylor & Francis Journals, vol. 44(31), pages 4037-4053, November.
    5. Blaise Gadanecz & Richhild Moessner & Christian Upper, 2007. "Economic derivatives," BIS Quarterly Review, Bank for International Settlements, March.
    6. Chen, En-Te (John) & Clements, Adam, 2007. "S&P 500 implied volatility and monetary policy announcements," Finance Research Letters, Elsevier, vol. 4(4), pages 227-232, December.
    7. Coffinet, J. & Frappa, S., 2008. "Macroeconomic Surprises and the Inflation Compensation Curve in the Euro Area," Working papers 220, Banque de France.
    8. Ana Lasaosa, 2007. "Learning the Rules of the New Game? Comparing the Reactions in Financial Markets to Announcements before and after the Bank of England's Operational Independence," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 10(1), pages 18-41, Summer.
    9. Balázs Égert, 2010. "The Impact of Monetary and Commodity Fundamentals, Macro News and Central Bank Communication on the Exchange Rate: Evidence from South Africa," Open Economies Review, Springer, vol. 21(5), pages 655-677, November.
    10. Andreas Reschreiter, 2010. "Indexed bonds and revisions of inflation expectations," Annals of Finance, Springer, vol. 6(4), pages 537-554, October.
    11. Francisco Jareno, 2008. "Spanish stock market sensitivity to real interest and inflation rates: an extension of the Stone two-factor model with factors of the Fama and French three-factor model," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3159-3171.
    12. Robert S. Chirinko & Christopher Curran, 2013. "Greenspan Shrugs: Central Bank Communication, Formal Pronouncements and Bond Market Volatility," CESifo Working Paper Series 4236, CESifo.
    13. Roman Matousek, 2001. "Transparency and Credibility of Monetary Policy in Transition Countries: The Case of the Czech Republic," Archive of Monetary Policy Division Working Papers 2001/37, Czech National Bank.
    14. Refet S. Gürkaynak & Brian P. Sack & Eric T. Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    15. Andrew Clare & Roger Courtenay, 2001. "Assessing the impact of macroeconomic news announcements on securities prices under different monetary policy regimes," Bank of England working papers 125, Bank of England.
    16. María de la O & Francisco JAREÑO, Francisco & SKINNER, Frank S., 2017. "The Financial Crisis Impact: An Industry Level Analysis Of The Us Stock Market González," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 17(2), pages 61-74.
    17. Jones, Brad & Lin, Chien-Ting & Masih, A. Mansur M., 2005. "Macroeconomic announcements, volatility, and interrelationships: An examination of the UK interest rate and equity markets," International Review of Financial Analysis, Elsevier, vol. 14(3), pages 356-375.
    18. Li, Lifang & Narayan, Paresh Kumar & Zheng, Xinwei, 2010. "An analysis of inflation and stock returns for the UK," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(5), pages 519-532, December.
    19. Antonio Díaz & Francisco Jareño, 2013. "Inflation news and stock returns: market direction and flow-through ability," Empirical Economics, Springer, vol. 44(2), pages 775-798, April.
    20. Díaz, Antonio & Jareño, Francisco, 2009. "Explanatory factors of the inflation news impact on stock returns by sector: The Spanish case," Research in International Business and Finance, Elsevier, vol. 23(3), pages 349-368, September.
    21. Toni Gravelle & Richhild Moessner, 2001. "Reactions of Canadian Interest Rates to Macroeconomic Announcements: Implications for Monetary Policy Transparency," Staff Working Papers 01-5, Bank of Canada.
    22. Imlak Shaikh & Puja Padhi, 2013. "Macroeconomic Announcements and the Implied Volatility Index: Evidence from India VIX," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(4), pages 417-442, November.

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