Response of Stock Markets to Monetary Policy: An Asian Stock Market Perspective
Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad; Hassanzadeh, Ali; Prasetyo, Ahmad Danu | September 2014
Abstract
We estimate the response of Asian stock market prices to exogenous monetary policy shocks using a vector error correction model. In our paper, monetary policy transmits to stock market price through three routes: money by itself, exchange rate, and inflation. Our result points to the fact that stock prices increase persistently in response to an exogenous easing monetary policy. Variance deposition results show that, after 10 periods, the forecast error variance of beyond 53% of the Tehran Stock Exchange Price Index (TEPIX) can be explained by exogenous shocks to the US dollar–Iranian rial exchange rate, while this ratio for exogenous shocks to Iranian real gross domestic product was only 17%. We argue that such evidence can be accounted for by an endogenous response of the stock prices to the monetary policy shocks.
Citation
Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad; Hassanzadeh, Ali; Prasetyo, Ahmad Danu. 2014. Response of Stock Markets to Monetary Policy: An Asian Stock Market Perspective. © Asian Development Bank Institute. http://hdl.handle.net/11540/1101. License: CC BY-NC-ND 3.0 IGO.Keywords
Development
Finance
Development Challenges
Development Issues
Development Problems
Microenterprises Finance
Commercial Finance Companies
Enterprise Financing
Financial Analysis
Banking Finance And Investment
ADB
Project finance
Development plans
Strategic planning
Business Financing
Investment Requirements
Insurance Companies
International Monetary Relations
International Financial Market
Exchange Rate
Insurers
Insurance stocks
Insurance holding companies
Insurance carriers
Insurance agencies
Business subsidies
Investment companies
International banks and banking
Stock exchanges
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