nach oben

Journal of Quantitative Economics

Erschienen in:

19.02.2019 | Original Article

Monetary Policy Announcements and Stock Returns: Some Further Evidence from India

verfasst von: Sashikanta Khuntia, Gourishankar S. Hiremath

Erschienen in: Journal of Quantitative Economics | Ausgabe 4/2019

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

We inquire into the nexus between monetary policy announcements and stock returns in emerging market economies. Drawing the sample from one of the important emerging economies such as India, we show that the Indian stock market is responsive to unscheduled and unexpected scheduled monetary policy announcements whereas the market was already adapted to the expected component of scheduled announcements. The evidence supports the rational expectation hypothesis. This study also finds the effect of policy change direction and monetary policy announcement as a kind of news (good or bad news) on specific sectoral stock returns. Further, we find banking, financial services and auto sectors are the most prominent in transmitting the objective of the monetary policy. This study documents the repo rate is relatively important monetary policy rate to affects the stock returns and response of sectoral returns vary across the instruments. Overall, the evidence from this study confirms the proposition that monetary policy transmission via stock market is significant.

Vorheriger Artikel Welfare Cost of Inflation: Evidence from India

Nächster Artikel A Flexible Approach to Age Dependence in Organizational Mortality: Comparing the Life Duration for Cooperative and Non-Cooperative Enterprises Using a Bayesian Generalized Additive Discrete Time Survival Model

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Chen and Hu (2013), Kumari and Mahakud (2015) provide some evidence on effects of macroeconomic variables on stock returns. Bhattacharyya and Sensarma (2008) discuss the effectiveness of MP signals in India and report that RBI’s policy action has a negligible impact on the stock market. However, our study focuses on effects of announcements and uses a sophisticated methodology as explained in the main text.

Konrad (2009) mentions that literature on the relationship between MP decision and the stock market is still nascent.

According to Bloomberg (2015) report, the central bank in India primarily targets repo, reverse repo and CRR to control the cost of borrowing and liquidity.

Reddy (2007): “While the preferred instruments are indirect and varied, there is no hesitation in taking recourse to direct instruments also, if circumstances so warrant. The complex situations do warrant the dynamics of different combination of direct and indirect instruments, in multiple forms to suit the conditions affecting transmission mechanism”.

Gokarn (2010) reports increasing use of these multiple instruments by the central banks in different situations to meet the policy objective.

The survey data is ambiguous for the period before 2007.

Currently, RBI follows bi-monthly policy announcement system.

We observe that MP announcements during 2008–2009 usually goes beyond the usual trend.

The estimates of PCA are available upon request from the authors.

Such an analysis is beyond the scope of the present work and future research can extend the present study.

We have removed unexpected no change from estimations because of its statistical insignificance.

The prime reason for the construction of a small 3-day’s event window is because of the frequent interim announcements made by the central bank. Some announcements were made in a day’s gap.

Diagnostic test estimates are available with authors and available on request.

The estimated results of sectoral indices are not reported to save the space and available upon request from authors.

Agrawal, G. 2007. Monetary policy announcements and stock price behavior: Empirical evidence from CNX Nifty. Decision 34 (2): 133–153.

Basistha, A., and A. Kurov. 2008. Macroeconomic cycles and the stock market’s reaction to monetary policy. Journal of Banking & Finance 32 (12): 2606–2616.CrossRef

Bernanke, B. S. (2003). Monetary policy and the stock market: some empirical results. Banking and Finance Lecture, Widener University (October 2, 2003).

Bernanke, B.S., and A.S. Blinder. 1992. The Federal funds rate and the channels of monetary transmission. American Economic Review 82 (4): 901–921.

Bernanke, B.S., and K.N. Kuttner. 2005. What explains the stock market’s reaction to federal reserve policy? Journal of Finance 60 (3): 1221–1257.CrossRef

Bhattacharyya, I., and R. Sensarma. 2008. How efectives are monetary policy signals in India? Journal of Policy Modelling 30 (1): 169–183.CrossRef

Bloomberg, L. P. 2015. BN Survey MP. Reserve Bank of India monetary policy history. Retrieved Sep. 21, 2015, from Bloomberg database.

Bohl, M.T., P.L. Siklos, and D. Sondermann. 2008. European stock markets and the ECB’s monetary policy surprises. International Finance 11 (2): 117–130.CrossRef

Bomfim, A. N., & Reinhart, V. R. 2000. Making news: financial market effects of Federal Reserve disclosure practices. FEDS Working Paper No. 2000-14 Available at SSRN: http://ssrn.com/abstract=224843 or http://dx.doi.org/10.2139/ssrn.224843. Accessed 07 Feb 2017.

Bowman, D., J.M. Londono, and H. Sapriza. 2015. US unconventional monetary policy and transmission to emerging market economies. Journal of International Money & Finance 55 (6): 27–59.CrossRef

Bredin, D., S. Hyde, D. Nitzsche, and G. O’reilly. 2007. UK stock returns and the impact of domestic monetary policy shocks. Journal of Business Finance & Accounting 34 (5–6): 872–888.CrossRef

Campbell, J.Y., A.W. Lo, and A.C. MacKinlay. 1997. The econometrics of financial markets. Princeton: Princeton University Press.CrossRef

Carrasco, B., & Mukhopadhyay, H. 2014. Reserve Bank of India’s policy dilemmas: Reconciling policy goals in times of turbulence. Working Paper Series, 393, Asian Development Bank.

Chatziantoniou, I., D. Duffy, and G. Filis. 2013. Stock market response to monetary and fiscal policy shocks: Multi-country evidence. Economic Modelling 30: 754–769.CrossRef

Chen, G.R., and M.H. Wu. 2013. How does monetary policy influence capital markets? Using a threshold regression model. Asia-Pacific Financial Markets 20 (1): 31–47.CrossRef

Chuliá, H., M. Martens, and D.Van Dijk. 2010. Asymmetric effects of federal funds target rate changes on S&P100 stock returns, volatilities and correlations. Journal of Banking & Finance 34 (4): 834–839.CrossRef

Conover, C.M., G.R. Jensen, and R.R. Johnson. 1999. Monetary conditions and international investing. Financial Analysts Journal 55 (4): 38–48.CrossRef

Das, S. 2015. Monetary Policy in India: Transmission to Bank Interest Rates. IMF Working paper 15/129, International Monetary Fund, Washington D.C.

Davig, T., & Gerlach, J. 2006. State-dependent stock market reactions to monetary policy: ‘bubble’vs. fundamental states. https://papers.ssrn.com/sol3/papers.cfm?abstractid=882151.

Ehrmann, M., & Fratzscher, M. 2004. Taking stock: Monetary policy transmission to equity markets. ECB Working Paper 354, European Central Bank, Berlin.

Fama, E.F., and K.R. French. 1989. Business conditions and expected returns on stocks and bonds. Journal of Financial Economics 25 (1): 23–49.CrossRef

Farka, M. 2009. The effect of monetary policy shocks on stock prices accounting for endogeneity and omitted variable biases. Review of Financial Economics 18 (1): 47–55.CrossRef

Fatum, R., and M.M. Hutchison. 2003. Is sterilised foreign exchange intervention effective after all? An event study approach. The Economic Journal 113 (487): 390–411.CrossRef

Gokarn, S. 2010. Monetary policy considerations after the crisis: practitioners’ perspectives. Plenary Lecture at the conference Economic Policies for Inclusive Development, organized by Ministry of Finance, Government of India and National Institute of Public Finance and Policy at New Delhi.

Goyal, A. 2017. Macroeconomics and markets in developing and emerging economies. New York: Routledge.

Hausman, J. K., & Wongswan, J. 2006. Global asset prices and FOMC announcements. FRB International Finance Discussion Paper886, Federal Reserve.

Hildebrand, P.M. 2006. Monetary policy and financial markets. Financial Markets and Portfolio Management 20 (1): 7–18.CrossRef

Jensen, G.R., and R.R. Johnson. 1995. Discount rate changes and security returns in the US, 1962–1991. Journal of Banking & Finance 19 (1): 79–95.CrossRef

Jensen, G.R., and J.M. Mercer. 2002. Monetary policy and the cross-section of expected stock returns. Journal of Financial Research 25 (1): 125–139.CrossRef

Kim, S.J., L. Lee, and E. Wu. 2013. The impact of domestic and international monetary policy news on US and German bank stocks. International Finance Review 14: 177–212.

Konrad, E. 2009. The impact of monetary policy surprises on asset return volatility: The case of Germany. Financial Markets and Portfolio Management 23 (2): 111–135.CrossRef

Kumari, J. 2011. Stock returns and inflation in India: An empirical analysis. The IUP Journal of Monetary Economics 9 (2): 39–75.

Kumari, J., and J. Mahakud. 2015. Relationship between conditional volatility of domestic macroeconomic factors and conditional stock market volatility: Some further evidence from India. Asia-Pacific Financial Markets 22 (1): 87–111.CrossRef

Kuttner, K.N. 2001. Monetary Policy Surprises and Interest Rates: Evidence from the Fed Funds Futures Market. Journal of Monetary Economics 47 (3): 523–544.CrossRef

Lobo, B.J. 2000. Asymmetric effects of interest rate changes on stock prices. Financial Review 35 (3): 125–144.CrossRef

MacKinlay, A.C. 1997. Event studies in economics and finance. Journal of Economic Literature 35 (1): 13–39.

Mishkin, F. S. 2001. The Transmission mechanism and the role of asset prices in monetary policy. Working Paper 861, National Bureau of Economic Research, Cambridge M.A.

Mohan, R. 2012. Growth with financial stability: Central banking in an emerging market. New Delhi: Oxford University Press.

Patelis, A.D. 1997. Stock return predictability and the role of monetary policy. The Journal of Finance 52 (5): 1951–1972.CrossRef

Patra, M.D., J.K. Khundrakpam, S. Gangadaran, R. Kavediya, and J.M. Anthony. 2016. Responding to QE taper from the receiving end. Macroeconomics & Finance in Emerging Market Economies 9 (2): 167–189.CrossRef

Peterson, P.P. 1989. Event studies: A review of issues and methodology. Quarterly Journal of Business and Economics, 28 (3): 36–66.

Prabu, E., I. Bhattacharyya, and P. Ray. 2016. Is the stock market impervious to monetary policy announcements: Evidence from emerging India. International Review of Economics & Finance 46 (5): 166–179.CrossRef

Rahman, H.U., and H.M. Mohsin. 2011. Monetary Policy announcements and stock returns: Evidence from the Pakistani market. Transition Studies Review 18 (2): 342–360.CrossRef

Reddy, Y.V. 2007. Monetary policy development in India: An overview. Stockholm: Speech presented at Sveriges Riksbank.

Reinhart, V., and T. Simin. 1997. The market reaction to federal reserve policy action from 1989 to 1992. Journal of Economics & Business 49 (2): 149–168.CrossRef

Rigobon, R., and B. Sack. 2004. The impact of monetary policy on asset prices. Journal of Monetary Economics 51 (8): 1553–1575.CrossRef

Roley, V.V., and Sellon Jr, G.H. 1996. The response of the term structure of interest rates to federal funds rate target changes. In: Working paper 96-08.University of Hawai, Manoa.

Rosa, C. 2011. The Validity of the Event-study Approach: Evidence from the Impact of the Fed’s Monetary Policy on US and Foreign Asset Prices. Economica 78 (311): 429–439.CrossRef

Sasidharan, A. 2009. Stock Market’s Reaction to Monetary Policy Announcements in India. Munich Personal RePEc Archive (https://mpra.ub.uni-muenchen.de/24190/).

Sensarma, R., and I. Bhattacharyya. 2016. Measuring monetary policy and its impact on the bond market of an emerging economy. Macroeconomics and Finance in Emerging Market Economies 9 (2): 109–130.CrossRef

Siegel, J.J., and D.G. Coxe. 2002. Stocks for the long run, vol. 3. New York: McGraw-Hill.

Sousa, R.M. 2010. Housing wealth, financial wealth, money demand and policy rule: evidence from the euro area. The North American Journal of Economics & Finance 21 (1): 88–105.CrossRef

Stiglitz, J.E. 2013. A revolution in monetary policy: lessons in the wake of the global financial crisis. The 15th C. D. Deshmukh Memorial Lecture, Reserve Bank of India, Mumbai.

The World Federation of Exchanges, Statistics. 2015. Monthly Reports. Retrieved from http://www.world-exchanges.org/statistics/monthly-reports. Accessed 11 Dec 2016.

Thorbecke, W. 1997. On stock market returns and monetary policy. The Journal of Finance 52 (2): 635–654.CrossRef

Thorbecke, W., and T. Alami. 1994. The effect of changes in the federal funds rate target on stock prices in the 1970s. Journal of Economics & Business 46 (1): 13–19.CrossRef

Tobin, J. 1978. Monetary policies and the economy: the transmission mechanism. Southern Economic Journal, 44 (3): 421–431.CrossRef

Vithessonthi, C., and Y. Techarongrojwong. 2012. The impact of monetary policy decisions on stock returns: Evidence from Thailand. Journal of International Financial Markets, Institutions & Money 22 (3): 487–507.CrossRef

Wongswan, J. 2009. The response of global equity indexes to U.S. monetary policy announcements. Journal of International Money & Finance 28 (2): 344–365.CrossRef

Titel: Monetary Policy Announcements and Stock Returns: Some Further Evidence from India
verfasst von: Sashikanta Khuntia
Gourishankar S. Hiremath
Publikationsdatum: 19.02.2019
Verlag: Springer India
Erschienen in: Journal of Quantitative Economics / Ausgabe 4/2019
Print ISSN: 0971-1554
Elektronische ISSN: 2364-1045
DOI: https://doi.org/10.1007/s40953-019-00158-y

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 4/2019

A Flexible Approach to Age Dependence in Organizational Mortality: Comparing the Life Duration for Cooperative and Non-Cooperative Enterprises Using a Bayesian Generalized Additive Discrete Time Survival Model

Analysing Changes in Gender Difference in Learning in Rural India over Time

Production Sectors and Regions in Macroeconometric Models of India

Some Logical and Normative Issues Relating to Measurement in the Social Sciences

Political Risk and Real Exchange Rate: What Can We Learn from Recent Developments in Panel Data Econometrics for Emerging and Developing Countries?

Unilateral Support Equilibrium, Berge Equilibrium, and Team Problems Solutions

Premium Partner