Monetary policy and stock returns: Financing constraints and asymmetries in bull and bear markets

Dennis W. Jansen, Chun Li Tsai

Research output: Contribution to journalArticlepeer-review

59 Citations (Scopus)

Abstract

We examine asymmetries in the impact of monetary policy surprises on stock returns between bull and bear markets in the period 1994 to 2005. We ask how these impacts respond to the relative ability of firms to obtain external finance. We find that the impact of a surprise monetary policy in a bear market is large, negative, and statistically significant, and this holds across size decile portfolios. The impact of a surprise policy action in a bear market for most industries is significantly greater than the impact of surprise monetary policy in a bull market. Controlling for the capacity for external finance, stock returns of firms in bear states respond more than firms in bull states. Capacity for external finance is more important in a bear market, as it partially mitigates the larger impact of monetary policy in a bear market.

Original languageEnglish
Pages (from-to)981-990
Number of pages10
JournalJournal of Empirical Finance
Volume17
Issue number5
DOIs
Publication statusPublished - 2010 Dec 1

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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