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Expansionary Policy in the 21st Century: Unconventional monetary policy and its effect on equity valuation

Göransson, Tim LU and Karsten, Henrik (2019) NEKH01 20191
Department of Economics
Abstract
Over the past two decades several central banks have to varying extent and over different periods used unconventional monetary policy in order to govern stubbornly low inflation rates. As policy rates decrease to near zero or even negative levels for prolonged periods of time, the risk premium on financial markets as well as the cost of debt is altered. This thesis examines how equity valuations on stock market indices are affected by changing policy rates. The analysis consists of panel data regressions on aggregate market data from thirteen national stock market indices during the period 2005-2018. The findings establish a relationship between expansionary monetary policy and increased stock market valuation as measured by the... (More)
Over the past two decades several central banks have to varying extent and over different periods used unconventional monetary policy in order to govern stubbornly low inflation rates. As policy rates decrease to near zero or even negative levels for prolonged periods of time, the risk premium on financial markets as well as the cost of debt is altered. This thesis examines how equity valuations on stock market indices are affected by changing policy rates. The analysis consists of panel data regressions on aggregate market data from thirteen national stock market indices during the period 2005-2018. The findings establish a relationship between expansionary monetary policy and increased stock market valuation as measured by the price-earnings ratio, but not with regards to measures of market value relative to replacement cost. (Less)
Please use this url to cite or link to this publication:
author
Göransson, Tim LU and Karsten, Henrik
supervisor
organization
course
NEKH01 20191
year
type
M2 - Bachelor Degree
subject
keywords
Unconventional monetary policy, Equity valuation, Quantitative easing, Stock market index
language
English
id
8999035
date added to LUP
2020-02-14 08:41:55
date last changed
2020-02-14 08:41:55
@misc{8999035,
  abstract     = {{Over the past two decades several central banks have to varying extent and over different periods used unconventional monetary policy in order to govern stubbornly low inflation rates. As policy rates decrease to near zero or even negative levels for prolonged periods of time, the risk premium on financial markets as well as the cost of debt is altered. This thesis examines how equity valuations on stock market indices are affected by changing policy rates. The analysis consists of panel data regressions on aggregate market data from thirteen national stock market indices during the period 2005-2018. The findings establish a relationship between expansionary monetary policy and increased stock market valuation as measured by the price-earnings ratio, but not with regards to measures of market value relative to replacement cost.}},
  author       = {{Göransson, Tim and Karsten, Henrik}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Expansionary Policy in the 21st Century: Unconventional monetary policy and its effect on equity valuation}},
  year         = {{2019}},
}