Does Monetary Policy Have Asymmetric Effects on Stock Returns?

Chen, Shiu‐Sheng

doi:10.1111/j.0022-2879.2007.00040.x

Cited by 181 publications

(126 citation statements)

References 49 publications

Supporting

Mentioning

105

Contrasting

Unclassified

Order By: Relevance

“…Regime 1 corresponds to a high-mean, low-variance phase, while regime 2 corresponds to a low-mean, high-variance state, similar to the Bull and Bear Market phases reported by Chen (2007) inter alia. The estimated persistence for regime i is 1/ 1 − p ii for i = 0, 1.…”

Section: The Baseline Modelssupporting

confidence: 69%

“…Pearce and Roley (1985) find changes to monetary policy are significant determinants of movements in stock prices. Bernanke and Blinder (1992), Bernanke and Kuttner (2005) and Chen (2007), inter alia, all provide evidence that changes to monetary policy in the US impact on US equity values. Bredin, Hyde, Nitzsche and O'Reilly (2007) study the impact of domestic monetary shocks on UK stock returns.…”

Section: Introductionmentioning

confidence: 91%

“…- Table 2 Chen (2007) inter alia all report evidence of regime switching in equity returns from various markets. Many of these papers examine Markov-switching autoregressive models of the type…”

Section: The Baseline Modelsmentioning

confidence: 99%

“…A second aim of this paper is to seek evidence of periods of high volatility in equity returns and further to examine whether these periods are associated with events in the money markets in a statistically significant fashion. Deuker (1997), Lunde and Timmerman (2004), Bae, Kim and Nelson (2007) and Chen (2007) inter alia all find evidence of regime switching in equity returns. A common finding in these papers is that equity returns display two regimes, a high-mean, low variance regime and a low-mean high variance regime.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Regime switching in the relationship between equity returns and short-term interest rates in the UK

Henry

2009

Journal of Banking & Finance

View full text Add to dashboard Cite

We examine the relationship between short term interest rates and UK equity returns using a two regime Markov Switching EGARCH model. We find one high-return, low variance regime in which the conditional variance of equity returns responds persistently but symmetrically to equity return innovations. In the other, low-mean, highvariance, regime there is evidence that equity volatility responds asymmetrically and without persistence to shocks to equity returns. There is evidence of a regime dependent relationship between shorter maturity interest rate differentials and equity return volatility. Furthermore, there is evidence that events in the money markets influence the probability of transition across regimes.

show abstract

Section: The Baseline Modelssupporting

confidence: 69%

Section: Introductionmentioning

confidence: 91%

Section: The Baseline Modelsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Regime switching in the relationship between equity returns and short-term interest rates in the UK

Henry

2009

Journal of Banking & Finance

View full text Add to dashboard Cite

show abstract

“…Although the prominence of financial constraints reinforces the impact of a contractionary monetary policy in the bear market, as suggested by Chen (2007) when analyzing stock markets, the response of house price inflation is likely to be short-lived due to the optimistic behaviour of economic agents which progressively outweighs the negative effect of a positive shock in the interest rate. On the other hand, the distinctive pessimistic behaviour of the bull regime tends to make the reaction of real house price growth rate prolonged but weaker to a positive monetary shock, since households are less financially constrained in this regime.…”

Section: Regime Dependent Impulse Responsesmentioning

confidence: 99%

Is the relationship between monetary policy and house prices asymmetric across bull and bear markets in South Africa? Evidence from a Markov-switching vector autoregressive model

et al. 2013

View full text Add to dashboard Cite

Abstract. This paper examines asymmetries in the impact of monetary policy on the middle segment of the South African housing market from 1966:M2 to 2011:M12. We use Markov-switching vector autoregressive (MS-VAR) model in which parameters change according to the phase of the housing cycle. The results suggest that monetary policy is not neutral as house price growth decreases substantially with a contractionary monetary policy. We find that the impact of monetary policy is larger in bear regime than in bull regime; indicating the role of information asymmetry in reinforcing the financial constraint of economic agents. As expected, monetary policy reaction to a positive house price shock is found to be stronger in the bull regime. This suggests that central banks react more in bull regime in order to prevent potential crisis related to the subsequent bust in house prices bubbles which are more prominent in bull markets. These results substantiate important asymmetries in the dynamics of house prices in relation to monetary policy, vindicating the advantages of generating regime dependent impulse response functions.

show abstract

The Relationship Between Interest Rates and Agricultural Commodity Price Dynamics

Sun,

Katchova

2024

Agribusiness

View full text Add to dashboard Cite

The U.S. Federal Reserve has undertaken several interest rate interventions in the past decade. This study explores the relationship between U.S. corn and soybean prices and Federal Reserve monetary policy interventions, in the short and long run. We use a nonlinear autoregressive distributed lag model to capture three key features of agricultural commodity price responses to changes in interest rates. First, we observe that corn and soybean prices initially overreact to changes in interest rates, overshooting their long‐run equilibrium before gradually reverting. Second, in the short run, the relationship between soybean prices and interest rates is asymmetric; the initial price change is more pronounced for an interest rate increase than for a decrease of the same magnitude. Lastly, both corn and soybean prices display symmetry in the long run. These results help to understand how changes in interest rates affect commodity prices. Assessing the relationship between agricultural commodity prices and interest rates can assist farmers and processors in planning investments and loans based on interest rate forecasts.

show abstract

Does Monetary Policy Have Asymmetric Effects on Stock Returns?

Cited by 181 publications

References 49 publications

Regime switching in the relationship between equity returns and short-term interest rates in the UK

Regime switching in the relationship between equity returns and short-term interest rates in the UK

Is the relationship between monetary policy and house prices asymmetric across bull and bear markets in South Africa? Evidence from a Markov-switching vector autoregressive model

The Relationship Between Interest Rates and Agricultural Commodity Price Dynamics

Contact Info

Product

Resources

About