Publication Type
Journal Article
Version
acceptedVersion
Publication Date
8-2021
Abstract
This study examines the impact of monetary policy surprises on the stock price behaviour of a small developed economy, whose monetary policy is based on the exchange rate. We find that monetary policy surprises associated with all contractionary policy levers and a neutral policy lever, have a consistently significant and negative impact on stock returns. In comparison, only monetary policy surprises associated with a downward re-centering policy lever, has a significantly positive effect on stock returns. Using a recalibrated classification system, we also find that monetary policy surprises differ across sectors of the economy. Our results show how monetary policy surprises can have a significant impact on the stock market by having a disproportionate effect on sectors that face financial and liquidity constraints.
Keywords
Monetary policy, Sector classification, Financial constraints, Liquidity Constraint
Discipline
Asian Studies | Economic Policy | Finance | Finance and Financial Management
Research Areas
Finance
Publication
Quarterly Review of Economics and Finance
Volume
81
First Page
226
Last Page
236
ISSN
1062-9769
Identifier
10.1016/j.qref.2021.06.005
Publisher
Elsevier
Embargo Period
7-14-2022
Citation
SEQUEIRA, John M..
Monetary policy surprises, stock returns, and financial and liquidity constraints, in an exchange rate monetary policy system. (2021). Quarterly Review of Economics and Finance. 81, 226-236.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6731
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.qref.2021.06.005
Included in
Asian Studies Commons, Economic Policy Commons, Finance Commons, Finance and Financial Management Commons