Guo, Haifeng and Hung, Chi-Hsiou and Kontonikas, Alexandros (2022) The Fed and the Stock Market: A Tale of Sentiment States. Journal of International Money and Finance, 128. p. 102707. DOI https://doi.org/10.1016/j.jimonfin.2022.102707
Guo, Haifeng and Hung, Chi-Hsiou and Kontonikas, Alexandros (2022) The Fed and the Stock Market: A Tale of Sentiment States. Journal of International Money and Finance, 128. p. 102707. DOI https://doi.org/10.1016/j.jimonfin.2022.102707
Guo, Haifeng and Hung, Chi-Hsiou and Kontonikas, Alexandros (2022) The Fed and the Stock Market: A Tale of Sentiment States. Journal of International Money and Finance, 128. p. 102707. DOI https://doi.org/10.1016/j.jimonfin.2022.102707
Abstract
We analyze the period before the zero lower bound and show that the state of investor sentiment strongly affects the transmission of monetary policy to the stock market. The impact of Federal funds rate (FFR) surprises is mostly potent when sentiment-driven overvaluation is followed by a correction, whereby the stock market increases by 0.8% in response to an unexpected FFR cut of 10 basis points. Our findings suggest that monetary easing surprises during sentiment-waning phases boost the stock market by alleviating investors’ fear. The ability of sentiment to drive the observed state dependence is hard to reconcile with rational pricing.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | Investor Sentiment; Monetary Policy Surprises; Event Study |
| Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Essex Business School |
| SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
| Depositing User: | Unnamed user with email elements@essex.ac.uk |
| Date Deposited: | 20 Jul 2022 08:33 |
| Last Modified: | 30 Oct 2024 20:48 |
| URI: | http://repository.essex.ac.uk/id/eprint/33126 |
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