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| Monetary Policy Surprises and Stock Returns: Evidence from Media Forecasts |
| ZHU Xiaoneng, ZHOU Lei
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| School of Finance, Shanghai University of Finance and Economics |
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Abstract This paper uses media data to decompose monetary policy changes into expected and unexpected components. We then analyze the impact of changes in monetary policy on equity returns. Furthermore, we also explore the economic mechanism through which monetary policy affects the stock market. We have some interesting findings: (1) on average, a hypothetical unanticipated 1% cut in the required reserve rate is associated with about 0.806% increase in the Shanghai composite index, and 0.831% increase in the Shenzhen composite index,and the effects of change in deposit rate is even larger. (2) we categorize monetary policy into different types regarding the sign of surprise and investigate the asymmetric effects on stock market. (3) The effects of unanticipated monetary policy actions on expected future excess return account for the largest part of the response of stock prices.
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Published: 01 January 1900
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