Monetary shocks, equity returns and volatility: a firm-level panel data analysis

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Authors
Luo, H. Arthur
Cheng, Jen-Chi
Vijverberg, Chu-Ping C.
Issue Date
2016
Type
Article
Language
en_US
Keywords
Monetary shock , Firm characteristics , Taylor rule , Markov switching , GARCH , Financial accelerator model
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Abstract

This article studies the impact of monetary policy shocks on equity returns and their volatility among nine industries and their affiliated firms in the United States. We use an extension of the traditional CAPM as the analytical framework and approximate policy shocks with the unexpected component of the federal funds rate. Data on the characteristics of firms and industries are obtained from Compustat and the Center for Research in Security Prices, covering a sample period from 1987 to 2009. Our results clearly show that responses to policy shocks vary by industry and across firms. Furthermore, credit availability matters in certain industries, and small, financially constrained, and bank-dependent firms are found to be more vulnerable to unexpected federal funds rate shocks.

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Citation
Luo, H. Arthur; Cheng, Jen-Chi; Vijverberg, Chu-Ping C. 2016. Monetary shocks, equity returns and volatility: a firm-level panel data analysis. Applied Economics, vol. 48:no. 4:pp 261-275
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Routledge Journals, Taylor & Francis Group
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0003-6846
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