Show me the money: The monetary policy risk premium

Ozdagli, Ali K.; Velikov, Mihail

doi:10.1016/j.jfineco.2019.06.012

Cited by 69 publications

(8 citation statements)

References 88 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Ammer et al (2018) explore a specific case of search for yield on foreign investment in riskier US corporate bonds. 24 Evidence of monetary policy affecting risk premiums has been found in many studies (see Section 4 or, for example, Drechsler et al, 2018;Ireland, 2015;Ozdagli & Velikov, 2020). 25 A few notable examples in this respect are Bank of England (Burgess et al, 2013), Bank of Canada (Bank of Canada, 2020), and Sveriges Riksbank (Riksbank, 2018a), which support their main forecasting models with complementary satellite models, empirical models, and semi-structural models.…”

Section: E N D N O T E Smentioning

confidence: 87%

See 1 more Smart Citation

A prolonged period of low interest rates in Europe: Unintended consequences

Malovaná

Bajzík

Ehrenbergerová

et al. 2022

Journal of Economic Surveys

View full text Add to dashboard Cite

We examine the potential adverse effects of a prolonged period of low interest rates on financial stability from multiple perspectives. First, we provide a unique comparison of natural rates of interest estimated using two approaches—with and without financial factors—for six large European countries inside and outside the euro area. Second, we provide a comprehensive review of the empirical literature, allowing us to identify and categorize financial vulnerabilities, which may be created and fueled by low interest rates. Third, we discuss a situation in which a prolonged period of low interest rates may lead to a point of no return by contributing to higher indebtedness, overvalued asset prices and underpriced risks, resource and credit misallocation, and lower productivity. With respect to all of that, we offer a few monetary policy considerations. Specifically, we suggest that (i) monetary policy should act symmetrically over the medium to long term, (ii) both the short‐term and long‐term costs and benefits of pursuing accommodative or restrictive monetary policy should be accounted for, and (iii) monetary and macroprudential policies need to be coordinated, and their interactions should be accounted for in order to find the best policy mix for the economy.

show abstract

Section: E N D N O T E Smentioning

confidence: 87%

“…2424Evidence of monetary policy affecting risk premiums has been found in many studies (see Section 4 or, for example, Drechsler et al., 2018; Ireland, 2015; Ozdagli & Velikov, 2020). …”

mentioning

confidence: 98%

A prolonged period of low interest rates in Europe: Unintended consequences

Malovaná

Bajzík

Ehrenbergerová

et al. 2022

Journal of Economic Surveys

View full text Add to dashboard Cite

show abstract

“…Several important papers show that the policy uncertainty based on news affects financial markets and stock prices (Baker et al, 2016;Brogaard & Detzel, 2015;Pastor & Veronesi, 2013). Moreover, both academic studies and investors agree that stock prices are significantly driven by monetary policy, and then respond differently in the crosssection (Bernanke & Kuttner, 2005;Nielsen & Bender, 2010;Ozdagli & Velikov, 2020). However, how monetary policy uncertainty (MPU) based on news affects the investors' optimal investment decisions and then stock prices in the cross-section, little empirical research has been done.…”

Section: Introductionmentioning

confidence: 99%

Does monetary policy uncertainty command a risk premium in the Chinese stock market?

2021

View full text Add to dashboard Cite

We examine the pricing implications of monetary policy uncertainty (MPU) in the cross‐section of stock returns in the Chinese stock market. Our results show that the long‐short portfolio that is long stocks with the lowest exposures to innovations in MPU and short stocks with the highest exposures to innovations in MPU earns about 6% annualized alpha. The coskewness, idiosyncratic volatility, size, and book‐to‐market effects cannot account for the low (high) average returns earned by stocks with high (low) exposures to innovations in MPU. Furthermore, the exposure to innovations in MPU commands a significantly negative risk premium in the Fama‐MacBeth regressions. These results indicate that investors have preferences for the early resolution of MPU.

show abstract

“…Thus, when acquiring a risky financial asset (e.g., a stock or the portfolio of stocks), an investor expects excess return compared to a risk-free financial asset, i.e., the risk premium (e.g., Prat, 2013;DaSilva et al, 2019;Bamata et al, 2019;Petru et al, 2019). Thus, the monetary policy effect on the stock market's return occurs through the effect on the interest rate (risk-free) and/or risk premium (Ozdagli & Velikov, 2020). At the same time, the risk premium can be divided into several components, and the study can be performed to determine the channels that make monetary policy information signals have the most significant effect on the stock market return.…”

Section: Introductionmentioning

confidence: 99%

Influence of monetary information signals of the USA on the Ukrainian stock market

Pavlov

Гринько

Pavlova

et al. 2020

Investment Management and Financial Innovations

View full text Add to dashboard Cite

The stronger the level of economic integration between countries, the greater the need to study the formation patterns of the stock market reaction to the financial information signals. This concerns the Ukrainian stock market, which is now in its infancy, and which reaction to financial information signals is sometimes ambiguous. The research aims to identify the formation patterns of return and volatility indicators of the Ukrainian stock market reaction to the US financial information signals. To assess the direct nature of US financial information signals effect on the PFTS stock index, the GARCH econometric modeling toolkit was applied. The research information base is the PFTS stock index and the Federal Reserve System financial information signals at the discount rate for 2000–2019. The fetch is divided into intervals corresponded to the ascent and decline phases of the financial cycle. It was found that an unforeseen increase in the discount rate at the financial cycle decline phase by 25 basis points decreases the PFTS stock index return, on average by 2.9%. Besides, the hypothesis about the general change stabilizing effect in the discount rate on the Ukrainian stock market volatility at the financial cycle growth phase was confirmed. Nevertheless, for investors, the most essential is the regulator’s monetary signals in the discount rate at the financial cycle decline phases rather than at the ascent phases because there is a more significant increase in the volatility level.

show abstract

Show me the money: The monetary policy risk premium

Cited by 69 publications

References 88 publications

A prolonged period of low interest rates in Europe: Unintended consequences

A prolonged period of low interest rates in Europe: Unintended consequences

Does monetary policy uncertainty command a risk premium in the Chinese stock market?

Influence of monetary information signals of the USA on the Ukrainian stock market

Contact Info

Product

Resources

About