Monetary policy effects on equity returns: application of SVAR identified with high-frequency external instrument
The purpose of this study is to examine the effects of monetary policy on equity returns by applying an alternative econometric approach. Campbell and Ammer (1993) decomposed unexpected equity excess returns into three news components: risk premium news, real interest rate news and cash-flow news. T...
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| Format: | Article |
| Language: | English |
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Emerald Publishing
2021-11-01
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| Series: | Seonmul yeongu |
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| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/JDQS-08-2021-0021/full/pdf?title=monetary-policy-effects-on-equity-returns-application-of-svar-identified-with-high-frequency-external-instrument |
| _version_ | 1797984460759629824 |
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| author | Woon Wook Jang |
| author_facet | Woon Wook Jang |
| author_sort | Woon Wook Jang |
| collection | DOAJ |
| description | The purpose of this study is to examine the effects of monetary policy on equity returns by applying an alternative econometric approach. Campbell and Ammer (1993) decomposed unexpected equity excess returns into three news components: risk premium news, real interest rate news and cash-flow news. The literature has determined the monetary policy (MP) effects on these news components. The authors propose an alternative MP shock identification approach to analyze the MP effects on the above-mentioned news components under a structural vector autoregression (SVAR) setup. Under this approach, one can apply an MP indicator in the SVAR, which helps forecast equity excess returns along with its external instruments for identification. Further, this study uses the various recently proposed measures of exogenous MP shocks and Fed information shocks as external instruments, and shows the different patterns of the news components' responses depending on the information in the applied instruments. |
| first_indexed | 2024-04-11T07:03:06Z |
| format | Article |
| id | doaj.art-2ab4c08c661a41599d081d63eb66477c |
| institution | Directory Open Access Journal |
| issn | 1229-988X 2713-6647 |
| language | English |
| last_indexed | 2024-04-11T07:03:06Z |
| publishDate | 2021-11-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | Seonmul yeongu |
| spelling | doaj.art-2ab4c08c661a41599d081d63eb66477c2022-12-22T04:38:34ZengEmerald PublishingSeonmul yeongu1229-988X2713-66472021-11-0129431933110.1108/JDQS-08-2021-0021672947Monetary policy effects on equity returns: application of SVAR identified with high-frequency external instrumentWoon Wook Jang0Division of Business Administration, Yonsei University, Wonju, Republic of KoreaThe purpose of this study is to examine the effects of monetary policy on equity returns by applying an alternative econometric approach. Campbell and Ammer (1993) decomposed unexpected equity excess returns into three news components: risk premium news, real interest rate news and cash-flow news. The literature has determined the monetary policy (MP) effects on these news components. The authors propose an alternative MP shock identification approach to analyze the MP effects on the above-mentioned news components under a structural vector autoregression (SVAR) setup. Under this approach, one can apply an MP indicator in the SVAR, which helps forecast equity excess returns along with its external instruments for identification. Further, this study uses the various recently proposed measures of exogenous MP shocks and Fed information shocks as external instruments, and shows the different patterns of the news components' responses depending on the information in the applied instruments.https://www.emerald.com/insight/content/doi/10.1108/JDQS-08-2021-0021/full/pdf?title=monetary-policy-effects-on-equity-returns-application-of-svar-identified-with-high-frequency-external-instrumentequity return decompositionmonetary policy effectsstructural vector autoregressionexternal instrumentse44e52e58g12 |
| spellingShingle | Woon Wook Jang Monetary policy effects on equity returns: application of SVAR identified with high-frequency external instrument Seonmul yeongu equity return decomposition monetary policy effects structural vector autoregression external instruments e44 e52 e58 g12 |
| title | Monetary policy effects on equity returns: application of SVAR identified with high-frequency external instrument |
| title_full | Monetary policy effects on equity returns: application of SVAR identified with high-frequency external instrument |
| title_fullStr | Monetary policy effects on equity returns: application of SVAR identified with high-frequency external instrument |
| title_full_unstemmed | Monetary policy effects on equity returns: application of SVAR identified with high-frequency external instrument |
| title_short | Monetary policy effects on equity returns: application of SVAR identified with high-frequency external instrument |
| title_sort | monetary policy effects on equity returns application of svar identified with high frequency external instrument |
| topic | equity return decomposition monetary policy effects structural vector autoregression external instruments e44 e52 e58 g12 |
| url | https://www.emerald.com/insight/content/doi/10.1108/JDQS-08-2021-0021/full/pdf?title=monetary-policy-effects-on-equity-returns-application-of-svar-identified-with-high-frequency-external-instrument |
| work_keys_str_mv | AT woonwookjang monetarypolicyeffectsonequityreturnsapplicationofsvaridentifiedwithhighfrequencyexternalinstrument |