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The impact of monetary policy announcements on stock prices - A panel data study on large Swedish firms

Håkansson, Rasmus LU (2016) NEKH01 20161
Department of Economics
Abstract
This thesis aims to investigate the impact of domestic- and foreign monetary policy on stock returns of Swedish firms, currently listed at the Nasdaq Large Cap. Daily stock returns are regressed against FOMC- and Riksbank policy changes respectively on the day of their announcements, using a fixed effects model. Control variables and time dummies are included in the model to account for changing characteristics over time. In order to examine the industry-specific asymmetries of monetary policy, 12 repeated fixed effects regressions are carried out for 6 different industries with foreign- and domestic rate changes as the dependent variable. The methodology and general approach is well grounded in previous research on the topic and is the... (More)
This thesis aims to investigate the impact of domestic- and foreign monetary policy on stock returns of Swedish firms, currently listed at the Nasdaq Large Cap. Daily stock returns are regressed against FOMC- and Riksbank policy changes respectively on the day of their announcements, using a fixed effects model. Control variables and time dummies are included in the model to account for changing characteristics over time. In order to examine the industry-specific asymmetries of monetary policy, 12 repeated fixed effects regressions are carried out for 6 different industries with foreign- and domestic rate changes as the dependent variable. The methodology and general approach is well grounded in previous research on the topic and is the first one of its kind analyzing Swedish monetary policy.

The results seem to support the hypothesis of a negative relationship between domestic monetary policy tightening and stock prices where the coefficient for rate changes was highly significant. The coefficients in the fixed effects regression using foreign rate changes was statistically insignificant although that is not considered firm evidence for a non-existent relationship. The results from the repeated regressions are quite inconclusive, probably due to methodological reasons. This thesis builds on the existing event study research examining the effect of monetary policy on stock returns. (Less)
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author
Håkansson, Rasmus LU
supervisor
organization
course
NEKH01 20161
year
type
M2 - Bachelor Degree
subject
keywords
Monetary policy announcements stock prices panel data fixed effects different industries impact effects Riksbank FED
language
English
id
8890154
date added to LUP
2016-09-13 13:11:17
date last changed
2016-09-13 13:11:17
@misc{8890154,
  abstract     = {This thesis aims to investigate the impact of domestic- and foreign monetary policy on stock returns of Swedish firms, currently listed at the Nasdaq Large Cap. Daily stock returns are regressed against FOMC- and Riksbank policy changes respectively on the day of their announcements, using a fixed effects model. Control variables and time dummies are included in the model to account for changing characteristics over time. In order to examine the industry-specific asymmetries of monetary policy, 12 repeated fixed effects regressions are carried out for 6 different industries with foreign- and domestic rate changes as the dependent variable. The methodology and general approach is well grounded in previous research on the topic and is the first one of its kind analyzing Swedish monetary policy. 

	The results seem to support the hypothesis of a negative relationship between domestic monetary policy tightening and stock prices where the coefficient for rate changes was highly significant. The coefficients in the fixed effects regression using foreign rate changes was statistically insignificant although that is not considered firm evidence for a non-existent relationship. The results from the repeated regressions are quite inconclusive, probably due to methodological reasons. This thesis builds on the existing event study research examining the effect of monetary policy on stock returns.},
  author       = {Håkansson, Rasmus},
  keyword      = {Monetary policy announcements stock prices panel data fixed effects different industries impact effects Riksbank FED},
  language     = {eng},
  note         = {Student Paper},
  title        = {The impact of monetary policy announcements on stock prices - A panel data study on large Swedish firms},
  year         = {2016},
}