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Does Monetary Policy Have Asymmetric Effects on Stock Returns?
Author(s) -
CHEN SHIUSHENG
Publication year - 2007
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.0022-2879.2007.00040.x
Subject(s) - monetary policy , economics , stock (firearms) , monetary economics , markov chain , empirical evidence , stock market , financial economics , econometrics , mechanical engineering , paleontology , philosophy , epistemology , horse , machine learning , computer science , biology , engineering
This paper investigates whether monetary policy has asymmetric effects on stock returns using Markov‐switching models. Different measures of a monetary policy stance are adopted. Empirical evidence from monthly returns on the Standard & Poor's 500 price index suggests that monetary policy has larger effects on stock returns in bear markets. Furthermore, it is shown that a contractionary monetary policy leads to a higher probability of switching to the bear‐market regime.