Working Paper: NBER ID: w0958
Authors: Douglas K. Pearce; V. Vance Roley
Abstract: This paper investigates the short-run effect of unexpected changes in the weekly money stock on common stock prices. Survey data on money market participants' forecasts of money changes are employed to construct the measure of unanticipated movements in the money stock. The results indicate that an unexpected increase in money depresses stock prices and, consistent with the efficient markets hypothesis, only the unexpected part of the weekly money announcement causes stock price fluctuations. The October 1979 change in Federal Reserve operating procedures appears to have made stock prices somewhat more sensitive to large money surprises.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unexpected increase in the money supply (E51) | Depress stock prices (G19) |
| Unexpected changes in money (E49) | Stock prices (G19) |
| Federal Reserve's procedural changes in October 1979 (E52) | Stock prices become more responsive to large money surprises (E39) |
| Larger money surprises (E49) | More pronounced effects on stock prices (G19) |
| Prior movements in stock prices (G17) | Unexpected part of money announcements (E49) |