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Central bank's money market operations and daily stock returns
Author(s) -
Chundakkadan Radeef,
Sasidharan Subash
Publication year - 2021
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1781
Subject(s) - economics , endogeneity , stock (firearms) , monetary economics , money market , stock market , econometrics , monetary policy , mechanical engineering , paleontology , horse , engineering , biology
The objective of this paper is to examine the relationship between the central bank's daily money market operations in the form of Term Repo and Term Reverse Repo operations on stock returns using daily data. Unlike earlier studies, we use two new monetary measures, namely, Repo Spread and Reverse Repo Spread . Controlling for firm‐specific factors and time dummies and addressing endogeneity issue, we show that the central bank's money market operations have a significant effect on daily returns. Further, we also observe that the inclusion of these monetary variables improves the prediction of the stock returns.