Bank of Finland Discussion Papers (original) (raw)
Related papers
Factors Affecting Asset Price Expectations: Fundamentals and Policy Variables
SSRN Electronic Journal, 2002
This paper examines what factors move US and European stock and bond markets, extending earlier work by Campbell and Ammer (1993). Inflation news is incorporated into the stock and bond decomposition and explicit attention is given to different horizons over which expectations are formed. Sensitivities to monetary policy instruments and fundamental factors are examined. The data are monthly. For the euro area, a unique data set is constructed. The results illuminate a number of widely-held preconceptions and confirm that inflation news volatility is a non-trivial factor in the stock and bond return decompositions.
Inflation news and stock returns: market direction and flow-through ability
Empirical Economics, 2012
Previous studies of the short-run response of daily stock prices to announcements of macroeconomic news could be biased when responses in different scenarios cancel each other out. In our analysis of inflation news in the Spanish stock market, we consider market direction arguments and implement our study based on the sector of activity to control for the 'flow-through' ability of the firms in each industry. In general, our results are quite consistent with the 'market direction' and the 'flow-through' hypotheses. Unanticipated inflation news implies abnormal returns depending on the direction of the news, the state of the economy and the flow-through ability of the sector. The impact of positive surprises affects the abnormal returns of many more sectors than does the impact of negative surprises, especially in the low states of economy. These significant effects are mainly observed in industries that are characterised by low flow-through ability.
International Journal of Economics and Financial Issues, 2018
This study aims to measure the inflation news impact on common sector stock returns. Using consumer price index (CPI) and producer price index (PPI) announcements and daily returns of Standard & Poor's 500 index, an Event Study Methodology analysis of a sample period from January 1990 to April 2013 is conducted. Taking into account the direction of the inflation news and the state of the economy, sector returns seem to react strong to CPI announcements and do not react to PPI announcements. In addition, the majority of the significant responses occur 2 days after that the inflation announcement takes place, so investors may react later to the arrival of new information. Finally, inflation announcements appear to have an impact when the state of the economy is low and when the direction of news is negative. Therefore, the state of the economy and direction of surprises are central variables to analyses of inflation news effects on abnormal returns.
Stock and Bond Market Sensitivities to Monetary Variables
2001
This note examines the impact of interest rate and money shocks on Euro Area and U.S. financial markets. More specifically, a dynamic Gordon model is developed for stock and bond returns, which allows for a decomposition in fundamental factors. It is found that the impact of official interest rate shocks on financial markets is stronger and more significant than that
European Monetary Policy Surprises: the Aggregate and Sectoral Stock Market Response
International Journal of …, 2009
In this paper we investigate the stock market response to international monetary policy changes in the UK and Germany. Specifically, we analyse the impact of (un)expected changes in UK and German/euro area policy rates on UK and German aggregate and sectoral stock returns in an event study. The decomposition of the (un)expected changes in policy rates are based on futures markets. Overall, our results suggest that, UK monetary policy surprises have a significant negative influence on both aggregate and industry level stock returns in both the UK and Germany. The influence of German/Euro area monetary policy shocks appears insignificant for both countries.
Inflation Announcements, Federal Reserve Bias And Stock Returns
SSRN Electronic Journal, 2004
† The opinions and conclusions do not express in any way the opinions of CMVM, and cannot be used in any circumstances in processes related to CMVM. † † Financial support granted by the Fundação para a Ciência e a Tecnologia (FCT) is gratefully acknowledged.
US monetary policy surprises transmission to European stock markets
International Journal of Monetary Economics and Finance
This paper empirically investigates the impact of US monetary policy surprises on the volatility of stock market returns for euro area countries. More specifically, to extract the unanticipated component of the US monetary policy, we follow the Kuttner's methodology and we use the federal funds futures. Using the approach of dynamic conditional correlation (DCC) as introduced by Engle (2002) over the period from 1 January, 2004 through 31 December, 2008, we find that US monetary policy surprises exert a strong influence on market volatility. This confirms the efficient markets hypothesis demonstrating that equity prices should only react to new information. We also find a significant response of volatility to an expected component of target rate change. We highlight homogeneity in the responsiveness of European stock markets to US news announcements. It is important to note that the persistence of volatility is clear across all regressions and it is shown by the strong significance of associated coefficients.
Explanatory factors of the inflation news impact on stock returns by sector: The Spanish case
Research in International Business and Finance, 2009
This article appeared in a journal published by Elsevier. The attached copy is furnished to the author for internal non-commercial research and education use, including for instruction at the authors institution and sharing with colleagues. Other uses, including reproduction and distribution, or selling or licensing copies, or posting to personal, institutional or third party websites are prohibited. In most cases authors are permitted to post their version of the article (e.g. in Word or Tex form) to their personal website or institutional repository. Authors requiring further information regarding Elsevier's archiving and manuscript policies are encouraged to visit:
The working paper investigates the existence of a relationship between macroeconomic news and performance of the Deutch Hellenic and Italian stock market. OLS methodology is chosen to isolate economic news components of the observed macroeconomic indicators. The estimation results show that macroeconomic news related to interest rates or Government bonds with 10 years of maturity and GDP have a significant impact on the stock market performance. It is also revealed that stock returns shocks respond more to unexpected events not only economical or political, but also events occurred worldwide.