Research / BFI Working PaperNov 01, 2016

Monetary Policy and the Stock Market: Time-Series Evidence

We construct a slope factor from changes in federal funds futures of different horizons. Slope predicts stock returns at the weekly frequency: faster monetary policy easing positively predicts excess returns. Investors can achieve increases in weekly Sharpe ratios of 20% conditioning on the slope factor. The tone of speeches by the FOMC chair correlates with the slope factor. Slope predicts changes in future interest rates and forecast revisions of professional forecasters. Our findings show that the path of future interest rates matters for asset prices, and monetary policy affects asset prices throughout the year and not only at FOMC meetings.

More Research From These Scholars

BFI Working Paper Feb 10, 2020

Forward Guidance and Household Expectations

Olivier Coibion, Dimitris Georgarakos, Yuriy Gorodnichenko, Michael Weber
Topics:  Uncategorized
BFI Working Paper Aug 14, 2020

How Did U.S. Consumers Use Their Stimulus Payments?

Olivier Coibion, Yuriy Gorodnichenko, Michael Weber
Topics:  COVID-19
BFI Working Paper Jan 25, 2018

Unconventional Fiscal Policy

Francesco D'Acunto, Daniel Hoang, Michael Weber
Topics:  Fiscal Studies