A new high frequency data set is used to estimate the impact of the Fed on the level and volatility of stock prices while accounting for endogeneity and omitted variable biases and potential asymmetries. Results show that after addressing these issues, the effect of policy shocks on the level and volatility of stock returns is higher than previously reported. GARCH findings indicate that the volatility impact is tent-shaped, spiking during policy announcements and declining before and after the release. The level and conditional volatility of stock returns is found to respond asymmetrically to the type of policy shocks (timing versus future path of monetary policy) and the type of policy action (easing versus tightening).

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I evaluate the effectiveness of conventional and unconventional monetary policy measures by examining the transmission mechanism through the credit channel before and after the zero lower bound (ZLB). I focus on the impact of conventional and unconventional policy shocks on a cross-section of portfolio returns sorted on characteristics that capture firms' financial constraints (size and book-to-market). Results show that the credit channel of monetary policy is even more relevant at the ZLB relative to the previous period, and its effectiveness is almost entirely attributed to the high sensitivity of financially constrained firms (small and value stocks) to unconventional surprises. I find strong evidence that the reaction of portfolio returns to policy shocks is asymmetric depending on the state of the economy (recession vs. expansion), type of policy surprise (positive vs. negative), and aggregate level of market volatility. My findings are robust to several model extensions and alternative specifications.

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