This paper investigates the factors that affect the covariance between the federal funds rate and stock returns. I estimate a VAR system and implement covariance decomposition analysis. Most of the covariance between the federal funds rate and stock returns is affected by changes in stock market...

We extend the work of Bernanke and Kuttner (2005) by examining the impact of monetary shocks and policy tools on aggregate stock and bond returns as well as the stock returns of financial institutions during the recent period of Quantitative Easing (QE) in the U.S. Specially, we test for the...

The biggest and most well-known unsolved problem in academic finance is famously referred to as the Equity Premium Puzzle. It refers to the unexplained phenomenon that for over 100 years the average return on a well-diversified portfolio of equities has far outperformed that of risk-free,...

This paper studies the effects of FOMC communication on U.S. financial markets’ returns and volatility using a GARCH model over the period from 1998 to 2006. We build a new data set that includes information on all FOMC speeches, post-meeting statements, monetary policy reports and...

The purpose of this study is to examine the effects of monetary policy on equity returns by applying an alternative econometric approach. Campbell and Ammer (1993) decomposed unexpected equity excess returns into three news components: risk premium news, real interest rate news and cash-flow...

Do housing and equity booms significantly raise the probability of extremely bad outcomes at the margin? This study addresses this question for a group of 8 East Asian countries. The main findings are the following: (i) Asset price booms in housing and equity markets, either separately or...

We investigate the effects of U.S. monetary policy on asset prices using a high-frequency event-study analysis. We test whether these effects are adequately captured by a single factor - changes in the federal funds rate target - and find that they are not. Instead, we find that two factors are...

This working paper evaluates the economic sources of the stock market responses of 40 countries to surprises in the fed funds rate (FFR), the Fed's forward guidance (FG) and large-scale asset purchases (LSAP). We decompose stock market returns into different components reflecting investors'...

This paper attempts to identify how monetary policy shocks affect stock prices by using Mundell and Fleming's theory of the "Impossible Trinity". According to this theory, it is impossible to simultaneously have a fixed exchange rate, free capital movement (an absence of capital controls), and...

This paper aims to identify the effect of monetary policy shocks on stock prices through the lens of Mundell and Fleming's “Impossible Trinity” theory. Our identification strategy seeks to solve the simultaneity and omitted variable problems inherent in studies that focus on the effect of...