Taking Stock: Monetary Policy Transmission to Equity Markets

By Michael Ehrmann, Marcel Fratzscher. Social Science Research Network, 2004

449 citations recorded by the source corpus.

This paper analyses the effects of U.S. monetary policy on stock markets.We present evidence that individual stocks react in a highly heterogeneous fashion to U.S. monetary policy shocks and relate this heterogeneity to financial constraints and Tobin's q. First, we show that there are strong industry-specific effects of U.S. monetary policy. Second, we also find that for the 500 individual stocks comprising the S&P500 the firms with low cash flows, small size, poor credit ratings, low debt to capital ratios, high price-earnings ratios, or a high Tobin's q are affected significantly more by monetary policy.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/a8b5f698129c2b1b49d76e6ae6460e56749fa9ca

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Monetary Policy and Bank Profitability in a Low Interest Rate Environment (2018, unknown): “…on net interest income.8 The paper also contributes to the literature on the impact of monetary policy on expected profitability of firms as measured by stock market returns (Thorbecke, 1997; Bernanke and Kuttner, 2005; Rigobon and Sack, 2004; Ehrmann and Fratzscher, 2004; English, et al., 2014).”
Monetary Policy Through Production Networks: Evidence from the Stock Market (2017, background): “However, recent work by Gabaix (2011) and Acemoglu et al.”
Stock market response to monetary and fiscal policy shocks: Multi-country evidence (2013, unknown): “In a similar fashion, Ehrmann and Fratzscher (2004), Rigobon and Sack (2003), and more recently, Sousa (2010) provide evidence that there is a negative relationship between contractionary monetary policy and stock market performance.”
Are Sticky Prices Costly? Evidence from the Stock Market (2016, unknown): “Ehrmann and Fratzscher (2004) and Ippolito, Ozdagli, and Perez (2013), among others, show that firms with low cash flows, small firms, firms with low credit ratings, high price-earnings multiples, and Tobin’s q show a higher sensitivity to monetary policy shocks, which is in line with bank lending, ”
Simultaneous monetary policy announcements and international stock markets response: an intraday analysis (2011, background): “The path surprise reflects news that market 1 See for example, Bredin et al (2003, 2007), Conover, Jensen and Johnson (1999), and Ehrmann and Fratzschr (2004), among others.”
The Reaction of Asset Prices to Macroeconomic Announcements in New EU Markets: Evidence from Intraday Data (2009, background): “to Macroeconomic Announcements in New EU Markets: Evidence from Intraday Data”
Global Asset Prices and FOMC Announcements (2006, background): “Extensive studies have documented significant effects of U.S. monetary policy announcement surprises on U.S. asset prices (e.g., Kuttner (2001), Ehrmann and Fratzscher (2004), Gürkaynak, Sack, and Swanson (2005), and Bernanke and Kuttner (2005)).”
Stock market performance and economic growth Empirical Evidence from Kenya using Causality Test Approach (2011, background): “Ehrmann and Fratzscher pointed out that, more research is needed to understand why individual stocks react so differently to some macroeconomic factors such as monetary policy shocks which are cited as being a driving force behind their reaction with stock market prices [19].”
The impact of monetary policy announcements on the stock price of large European banks during the financial crisis (2015, background): “For example, Ehrmann and Fratzscher (2004), studying the impact of the U.S. Federal Reserve monetary policy on the 500 individual stocks comprising the S&P500 over 1996-2003, find that firms smaller in size, with low cash flows, poor credit ratings, low debt to capital ratios, high price-earnings…”
Investor Sentiment and the Stock Market’s Reaction to Monetary Policy (2010, unknown): “These industry effects are consistent with Ehrmann and Fratzscher (2004). [Insert Table 6 about here] Bernanke and Kuttner (2005) show that the observed cross-industry variation in stock responses to target rate shocks is explained reasonably well by the one-factor CAPM.”
Explaining Monetary Policy in Press Conferences (2018, background): “…and 5 Some important studies on the Federal Reserve, though this list is by no means exhaustive, are Thornton (1998), Fleming and Remolona (1999), Kuttner (2001), Cochrane and Piazzesi (2002), Bomfin (2003), Bernanke and Kuttner (2003), Rigobon and Sack (2004), and Ehrmann and Fratzscher (2004).”