Sirucek, Martin (2011): Impact of monetary policy on US stock market. Published in: Trends economics and management , Vol. V, No. 09 (September 0211): pp. 53-60.
Download (112kB) | Preview
Purpose of the article The present article deals with associations between the development of money supply measured by the money aggregate M2 and the development of the Ameri-can stock index Dow Jones Industrial Average. The objective of the article is to determine, describe and assess the impact of the changes of money supply (as measured by the money aggregate M2) on the development of the American stock market. Another objective is to find out whether the changes in money supply are reflected in the changes of stock prices immediately or with a time delay of several weeks. Methodology/methods Regarding to the aim of the article was all useful historic data of money suplly (measured with money aggregate M2) and close values of DJIA obtain in monthly frequence, since 1959 to 2011. From econometric methods, will be using Pearson correlation index, Dickey-Fuller stationary test and test of Granger causality, which will be focus on realtionship between money supply (M2) and stock prices (DJIA index). Scientific aim The aim of this article is by using econometric methods find, describe and analyze ipact of changing money supply to selected stock market. The second aim is disclose, if stock market react immediately or with time delay (in week).
Findings The correlation analysis shows, that between change of money supply and stock index is high dependence (correlation index 0.9224). By calculating with time delay, was correlation index high too, but slowly decrease. By market colaps in year 2007 and 2008, was correlation index negative with value -0.9477, no matter to money supply rasing, that is meaning, that investors have to calculate with psychologic factors, which are very strong in nervous time and market crashes. The result of Granger causality test for 1 month delay failed to show a relationship between money supply and DJIA index. With application of 2, 3 and 6 month delay the dependence was demonstrated, rejecting the null hypothesis stat-ing that the M2 money aggregate does not affect the DJIA stock index Conclusions (limits, implications etc) Reached results can be biased by using first diferention of raw data and in correlation analysis was using raw (non-sesonally adjusted) data of development DJIA index and sesonally adjusted data of money supply. The weak spot is using Dow Jones Index in place of S&P 500 index, which is more wider. By changes in analysis is possible to measure the impact of money supply (measured by Money with Zero Maturity aggregate) on stock index and compare both results and make decision, which aggregate is better for forecasting.
|Item Type:||MPRA Paper|
|Original Title:||Impact of monetary policy on US stock market|
|Keywords:||Money supply, stock market, correlation, Dickey-Fuller test, Granger causality|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
|Depositing User:||Martin Sirucek|
|Date Deposited:||30. Aug 2012 09:03|
|Last Modified:||13. Feb 2013 03:54|
ABDULAH, D. A., HAYWORTH S. C., Macroeconometrics of stock price fluctuation. Quarterly Journal of Business and Economics, 1993, 32.
ALATIQI S., FAZEL S. Can money supply predict stock prices?. Journal for economic educators, 2008.
BANK FOR INTERNATIONAL SETTLEMENTS: The role of asset prices in the formulation of monetary policy. BIS conference papres, 1998.
BIANYING, X. Interaction of stock price of listed companies and macro-economiy of China. Wuham University of science and technologies: Master´s de-gree dissertation, 2004.
BILSON, C. M., BRAILSFORD, T. J., HOOPER, V. J. Selecting marcoeconomic variables as explanatory factors of emerging stocks market returns. The Aus-tralian national university: 2000. Working papers series in finance 00-04.
BORKOVEC, P. Komparace metod analýzy akcií. Diplomová práce. Mendelova zemědělská a lesnická univerzita v Brně. Brno: 2001.
BRAHMASRENE, T. JIRANYAKUL, K. Cointegration and causality between stock index and macroeconomic variables in a emerging markets. Academy of Acounting and Financial Studies Journal, September, 2007.
CORRADO, CH. J. JORDAN, B. D. Fundamentals of investments: Valuation and management. New York: Mc Graw Hill Irwin, 2005.
DHAKAL, D. KANDIL, M. SHARMA, S. Causality between money supply and share prices: A VAR inves-tigation. Quarterly Journal of Business and Econom-ics, 1993, vol. 32.
FAMA, E. F. Stock returns, real Activity, inflation and money. The American Economic review: 1981, 71(4): 45-565.
GRANGER, C. W. J. NEWBOLD, P. Spurious re-gressions in econometrics. Journal of Econometrics, Elsevier, vol. 2, pages. 111 – 120. July 1974.
GUPTA, M. C. Money supply and stock market: A probabilistic approach. Journal of finance and quantitative analysis, 9(1). 1974.
HABIBULLAH, M. Money, output, stock prices in Malaysia: Futher evidence. Borneo review, 1998.
HANCOCK, D. G. Fiscal policy, monetary policy and the efficiency of the stock market. Economics letters, 1989, vol. 31.
HANOUSEK, J. FILER, R. K. The relationship be-tween economic factors and equity markets in Central Europe. Economics of transition, 8 (3) 2000. 623-638.
HO, Y. Money supply and equity proces: An empirical note on far eastern countries. Economics letters, 1983. KING. B. Market and industry factors in stock price behaviour. Journal of business, January 1966.
KULHÁNEK, L., MATUZSEK, S. Peněžní zásoba a vývoj akciových trhů v České republice, Slovenské republice a ve vybraných zemích. Mezinárodní vědecká konference Národohospodárskej fakulty Ekonomické univerzity v Bratislavě „Znalostná ekonomika – nové výzvy pre nárohospodársku vedu“. Ekonomická univerzita v Bratislavě 2006.
KRAFT, J. KRAFT, A. Determinants of commonstock price: a time series analysis. The journal of finance, 32 (2). 1977.
LEE, U. The impact of financial deregulation on the relationship between stock prices and monetary poli-cy. Quarterly Journal of Business and Economics, 1994, vol. 33.
MAYSAMI, R. C. KOH, T. S. . A Vector Error Cor-rection Model of the Singapore Stock Market. International Review of Economics and Finance, 2000.
MASKAY, B. Analyzing the Effect of Change in Money Supply on Stock Prices, The Park Place Econ-omist: 2007, Vol. 15.
MOOKHEJEE, R. YU, Q. Macroeconomic variables and stock prices in a small open economy: the case of Singapore. Pacific Basin Fin. J.: 1997, 5(3): 377-388.
MUKHERJEE, T. K. NAKA, A. Dynamic relations between macroeconomic variables and the Japanese stock market: an application of a vector error correc-tion model. The Journal of Financial Research, 1995, 18(2): 223-237.
MUSÍLEK, P. Změny makroekonomických veličin a akciové kurzy. Finance a úvěr, 47, 1997, č.3.
PEARCE, D. K. ROLEY, V. V. Stock prices and economic news. The journal of business, 58 (1). 1985.
POIRÉ N. P. The money effect. Barron´s business and financial weekly magazine: August, 2000.
RAPACH, D. E., WOHAR, M. E. RANGVID, J. Macro variables and international stock return pre-dictability. International journal of forecasting, 2005.
ROZEFF, M. S. Money and stock prices, Market effi-ciency and the lag in effect of monetary policy. Journal of Financial Economics, 1974, 1.
SELLIN, P. Monetary policy and the stock market. Theory and empirical evidence. Journal of economic surveys, 2001.
SHAOPING, CH. Positivist analysis on effect of monetary policy on stock price behaviors. Proceed-ings of 2008 conference on regional economy and sustainable developmentm, 2008. ISBN 978-0-646-50352-3.
HOSTAK, F. Making sense of money supply data. Mises daily: December 17, 2003. [online] 2010. [cit. 2011-08-26]. Dostupné z < http://mises.org/daily/1397>.
SPRINKEL, B. W. Money and stock prices. Homewooh, Illinois: Richard Irwin Inc. 1964.
ŠÍMA, J. LIPKA, D. Bubliny na akciových trzích jako důsledek aktivní monetární politiky. Liberální institut, 2004.
VESELÁ, J. Investovaní na kapitálových trzích. Praha: ASPI, a. s., 2007, 704 s. ISBN 978-80-7357-297-6.
VESELÁ, J. Český kapitálový trh pohledem globální fundamentální analýzy. Sborník příspěvků z mezinárodní vědecké konference „Evropské finanční systémy 2010“. Masarykova univerzita Brno, 2010. ISBN 978-80-210-5182-9.
WFE – MARKET CAPITALIZATION. Ts2 Market cap. [online] 2011. [cit. 2011-09-12]. Dostupné z <http://www.world-exchang-es.org/files/statistics/excel/Ts2%20Market%20cap..XLS>
YONG, L. Empirical study on relationship between stock market an macro-economic variables in China. Journal of Financial and Trading Economy, 2004.
YUANYUAN, C. DONGHUI, F. Information conno-tation of stock dividend policies ofcompanies listed in China: positivist study based on stock dividend policies stability. Journal of systems engineering, 2004.
ZMRAZILOVÁ, E. Finanční krize a měnová politika. [online] 2010. [cit. 2010-12-30]. Dostupné z: <http://bankovnictvi.ihned.cz/c1-47096300-financni-krize-a-menova-politika>.