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Monetary Policy Announcements and the Beta Risk Premium on NASDAQ OMX Stockholm

Lindberg Odhner, Clas LU and Zachrisson, Kevin LU (2016) NEKP03 20161
Department of Economics
Abstract
This research paper analyses the relationship between average excess stock return and market beta on the Nasdaq OMX Stockholm for the period 1999 to 2015. By using the Fama-MacBeth approach and several additional regressions, we are able to examine if the relationship exists on days when the market anticipates receiving news regarding monetary policy decision by the Riksbank, Federal Reserve, European Central Bank and Bank of England. We find a positive relationship on announcement days by the four central banks together but not on non-announcement days. For the individual central banks, a positive relationship is only found for announcement days by the Riksbank and Federal Reserve. These results suggest that market beta is an important... (More)
This research paper analyses the relationship between average excess stock return and market beta on the Nasdaq OMX Stockholm for the period 1999 to 2015. By using the Fama-MacBeth approach and several additional regressions, we are able to examine if the relationship exists on days when the market anticipates receiving news regarding monetary policy decision by the Riksbank, Federal Reserve, European Central Bank and Bank of England. We find a positive relationship on announcement days by the four central banks together but not on non-announcement days. For the individual central banks, a positive relationship is only found for announcement days by the Riksbank and Federal Reserve. These results suggest that market beta is an important measure of systematic risk, as investors demand higher returns when holding high-beta stocks on days when monetary policy decisions are announced. We also find that the average daily excess return is significant positive on announcement days overall and individually on announcement days by the Riksbank and Federal Reserve. In addition, the CAPM is found to be a valid asset pricing model on announcement days overall and on announcement days by the Riksbank and European Central Bank. (Less)
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author
Lindberg Odhner, Clas LU and Zachrisson, Kevin LU
supervisor
organization
course
NEKP03 20161
year
type
H2 - Master's Degree (Two Years)
subject
keywords
risk premium, CAPM, monetary policy, central bank, announcements
language
English
id
8877547
date added to LUP
2016-06-13 13:13:53
date last changed
2016-06-13 13:13:53
@misc{8877547,
  abstract     = {This research paper analyses the relationship between average excess stock return and market beta on the Nasdaq OMX Stockholm for the period 1999 to 2015. By using the Fama-MacBeth approach and several additional regressions, we are able to examine if the relationship exists on days when the market anticipates receiving news regarding monetary policy decision by the Riksbank, Federal Reserve, European Central Bank and Bank of England. We find a positive relationship on announcement days by the four central banks together but not on non-announcement days. For the individual central banks, a positive relationship is only found for announcement days by the Riksbank and Federal Reserve. These results suggest that market beta is an important measure of systematic risk, as investors demand higher returns when holding high-beta stocks on days when monetary policy decisions are announced. We also find that the average daily excess return is significant positive on announcement days overall and individually on announcement days by the Riksbank and Federal Reserve. In addition, the CAPM is found to be a valid asset pricing model on announcement days overall and on announcement days by the Riksbank and European Central Bank.},
  author       = {Lindberg Odhner, Clas and Zachrisson, Kevin},
  keyword      = {risk premium,CAPM,monetary policy,central bank,announcements},
  language     = {eng},
  note         = {Student Paper},
  title        = {Monetary Policy Announcements and the Beta Risk Premium on NASDAQ OMX Stockholm},
  year         = {2016},
}