| Summary: | 碩士 === 國立中正大學 === 財務金融所 === 93 === Abstract
This study aims to examine the relationship between monetary policy and stock returns in both developed and emerging stock markets with three widely used monetary policy indicators, overnight rate, money supply and discount rate. Unlike most of previous studies, we focus on the lead-lag and long-run relationship between stock returns and monetary policy by Granger causality and Johansen cointegration tests. We also examine the influence of U.S. monetary policy on international stock markets. Empirical results suggest that monetary policy, indicated by overnight rate and money supply particularly, seems to work better in emerging markets. Contrary to past literatures, U.S. monetary policy has little impact on foreign stock markets, especially those developed markets. Our findings indicate that only U.S. money supply can explain international stock returns while the federal funds rate and discount rate have almost no predictive power on international returns.
Abstract
This article examines the dynamic linkages between U.S. and international monetary indicators and a conventional hypothesis that a floating exchange rate regime can insulate domestic monetary environments from changes in foreign monetary conditions, indicated by U.S. monetary indicators. Seven developed countries with more flexible regimes and six emerging countries that adopt more rigid regimes are included in our sample. Dividing sample period into subperiods, we provide some evidence supporting this conventional hypothesis. First, although U.S. monetary indicators influence monetary conditions in developed countries before 1990s, this situation disappears in recent fifteen years. Second, we find that a shift from rigid regimes to flexible ones indeed renders monetary conditions in emerging countries less affected by U.S. monetary policy. This phenomenon is more apparent after Asia financial crisis when most of these emerging countries give up pegged exchange rate system. Overall, our results exhibit a trend that U.S. monetary condition gradually loses impact on those in foreign countries.
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