Abstract
The authors investigate the impact of structural monetary policy shocks on ex-post equity risk premium (ERP) of aggregate and sectoral FTSE indices and 25 Fama-French style value-weighted portfolios. They find that monetary policy shocks negatively affect the ERP but at the sectoral level, the magnitude of the response is heterogeneous. Further, monetary policy shocks have a significant negative (positive) impact on the ERP before (after) the implementation of quantitative easing (QE). The empirical evidence provided in the paper sheds light on the equity market’s asymmetric response to the BoE’s policy before and after the monetary stimulus.
| Original language | English |
|---|---|
| Pages (from-to) | 146-159 |
| Journal | Investment Management and Financial Innovations |
| Volume | 13 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - 16 Dec 2016 |
Keywords
- monetary policy
- equity risk premium
- quantitative easing
- monetary policy shocks
- structural vector autoregression
- Bank of England
- Taylor monetary policy rule
- unconventional monetary policy
- output gap
- inflation gap
- Okun’s law