Sentiment Regimes and Reaction of Stock Markets to Conventional and Unconventional Monetary Policies: Evidence from OECD Countries

References

• Altavilla, C., M. Boucinha, and J. L. Peydró. 2018. “Monetary Policy and Bank Profitability in a Low Interest Rate Environment.” Economic Policy 33 (96):531–86. doi:10.1093/epolic/eiy013
   Web of Science ®Google Scholar
• Aye, G. C., M. Balcilar, and R. Gupta. 2017. “International Stock Return Predictability: Is the Role of U.S. Time-Varying?” Empirica 44 (1):121–46. doi:10.1007/s10663-015-9313-3
   Web of Science ®Google Scholar
• Baker, M., and J. Wurgler. 2006. “Investor Sentiment and the Cross-Section of Stock Returns.” The Journal of Finance 61 (4):1645–80. doi:10.1111/j.1540-6261.2006.00885.x
   Web of Science ®Google Scholar
• Baker, M., and J. Wurgler. 2007. “Investor Sentiment in the Stock Market.” Journal of Economic Perspectives 21 (2):129–52. doi:10.1257/jep.21.2.129
   Web of Science ®Google Scholar
• Baker, S. R., N. A. Bloom, S. J. Davis, and S. J. Terry. 2020b. “COVID-Induced Economic Uncertainty.” NBER Working paper No. w26983.
   Google Scholar
• Baker, S. R., N. A. Bloom, S. J. Davis, K. Kost, M. Sammon, and T. Viratyosin. 2020a. “The Unprecedented Stock Market Reaction to COVID-19.” The Review of Asset Pricing Studies 10 (4):742–58. doi:10.1093/rapstu/raaa008
   Web of Science ®Google Scholar
• Balcilar, M., R. Gupta, and C. Kyei. 2018. “Predicting Stock Returns and Volatility with Investor Sentiment Indices: A Reconsideration Using a Nonparametric Causality-in-Quantiles Test.” Bulletin of Economic Research 70 (1):74–87. doi:10.1111/boer.12119
   Web of Science ®Google Scholar
• Basistha, A., and A. Kurov. 2008. “Macroeconomic Cycles and the Stock Market’s Reaction to Monetary Policy.” Journal of Banking & Finance 32 (12):2606–16. doi:10.1016/j.jbankfin.2008.05.012
   Web of Science ®Google Scholar
• Bathia, D., and D. Bredin. 2013. “An Examination of Investor Sentiment Effect in G7 Stock Market Returns.” The European Journal of Finance 19 (9):909–37. doi:10.1080/1351847X.2011.636834
   Web of Science ®Google Scholar
• Bathia, D., and D. Bredin. 2018. “Investor Sentiment: Does It Augment the Performance of Asset Pricing Models?” International Review of Financial Analysis 59:290–303. doi:10.1016/j.irfa.2018.03.014
   Web of Science ®Google Scholar
• Bathia, D., D. Bredin, and D. Nitzsche. 2016. “International Sentiment Spillovers in Equity Returns.” International Journal of Finance & Economics 21 (4):332–59. doi:10.1002/ijfe.1549
   Web of Science ®Google Scholar
• Berger, D., and J. Vavra. 2015. “Consumption Dynamics during Recessions.” Econometrica 83 (1):101–54. doi:10.3982/ECTA11254
   Web of Science ®Google Scholar
• Bernanke, B. S., and K. N. Kuttner. 2005. “What Explains the Stock Market’s Reaction to Federal Reserve Policy?” The Journal of Finance 60 (3):1221–57. doi:10.1111/j.1540-6261.2005.00760.x
   Web of Science ®Google Scholar
• Borio, C., L. Gambacorta, and B. Hofmann. 2017. “The Influence of Monetary Policy on Bank Profitability.” International Finance 20 (1):48–63. doi:10.1111/infi.12104
   Web of Science ®Google Scholar
• Campbell, S. D., and S. A. Sharpe. 2009. “Anchoring Bias in Consensus Forecasts and its Effect on Market Prices.” Journal of Financial and Quantitative Analysis 44 (2):369–90.
   Google Scholar
• Caraiani, P., and A. C. Călin. 2018. “The Effects of Monetary Policy on Stock Market Bubbles at Zero Lower Bound: Revisiting the Evidence.” Economics Letters 169 (C):55–8. doi:10.1016/j.econlet.2018.05.014
   Google Scholar
• Caraiani, P., and A. C. Cǎlin. 2020. “The Impact of Monetary Policy Shocks on Stock Market Bubbles: International Evidence.” Finance Research Letters 34 (C):101268. doi:10.1016/j.frl.2019.08.016
   Google Scholar
• Cepni, O., and R. Gupta. 2021. “Time-Varying Impact of Monetary Policy Shocks on U.S. Stock Returns: The Role of Investor Sentiment.” The North American Journal of Economics and Finance 51:101550. doi:10.1016/j.najef.2021.101550
   Web of Science ®Google Scholar
• Chebbi, T. 2019. “What Does Unconventional Monetary Policy Do to Stock Markets in the Euro Area?” International Journal of Finance & Economics 24 (1):391–411. doi:10.1002/ijfe.1669
   Web of Science ®Google Scholar
• Chen, S.-S. 2007. “Does Monetary Policy Have Asymmetric Effects on Stock Returns?” Journal of Money, Credit and Banking 39 (2–3):667–88. doi:10.1111/j.0022-2879.2007.00040.x
   Web of Science ®Google Scholar
• Chung, S.-L., C.-H. Hung, and C.-Y. Yeh. 2012. “When Does Investor Sentiment Predict Stock Returns?” Journal of Empirical Finance 19 (2):217–40. doi:10.1016/j.jempfin.2012.01.002
   Web of Science ®Google Scholar
• Cox, J., D. Greenwald, and S. C. Ludvigson. 2020. “What Explains the Covid-19 Stock Market?.” NBER Working paper No. w27784.
   Google Scholar
• Das, S., R. Demirer, R. Gupta, and S. Mangisa. 2019. “The Effect of Global Crises on Stock Market Correlations: Evidence from Scalar Regressions via Functional Data Analysis.” Structural Change and Economic Dynamics 50:132–47. doi:10.1016/j.strueco.2019.05.007
   Web of Science ®Google Scholar
• De Long, J. B., A. Shleifer, L. H. Summers, and R. J. Waldmann. 1990. “Noise Trader Risk in Financial Markets.” Journal of Political Economy 98 (4):703–38. doi:10.1086/261703
   Web of Science ®Google Scholar
• Deaves, R., E. Lüders, and M. Schröder. 2010. “The Dynamics of Overconfidence: Evidence from Stock Market Forecasters.” Journal of Economic Behavior & Organization 75 (3):402–12. doi:10.1016/j.jebo.2010.05.001
   Web of Science ®Google Scholar
• Eickmeier, S., and B. Hofmann. 2013. “Monetary Policy, Housing Booms, and Financial (im) Balances.” Macroeconomic Dynamics 17 (4):830–60. doi:10.1017/S1365100511000721
   Web of Science ®Google Scholar
• Eksi, O., B. Kamil, and O. Tas. 2017. “Unconventional Monetary Policy and the Stock Market’s Reaction to Federal Reserve Policy Actions.” The North American Journal of Economics and Finance 40 (C):136–47. doi:10.1016/j.najef.2017.02.004
   Google Scholar
• Galariotis, E., P. Makrichoriti, and S. Spyrou. 2018. “The Impact of Conventional and Unconventional Monetary Policy on Expectations and Sentiment.” Journal of Banking & Finance 86:1–20. doi:10.1016/j.jbankfin.2017.08.014
   Web of Science ®Google Scholar
• Gali, J., and L. Gambetti. 2015. “The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence.” American Economic Journal: Macroeconomics 7 (1):233–57. doi:10.1257/mac.20140003
   Web of Science ®Google Scholar
• Gambacorta, L., B. Hofmann, and G. Peersman. 2014. “The Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound: A Cross-Country Analysis.” Journal of Money, Credit and Banking 46 (4):615–42. doi:10.1111/jmcb.12119
   Web of Science ®Google Scholar
• Gebka, B. 2014. “The Non-Linear and Linear Impact of Investor Sentiment on Stock Returns: An Empirical Analysis of the US Market.” In Recent Advances in Estimating Nonlinear Models: With Applications in Economics and Finance, edited by J. Ma, and M. Wohar, 281–99. New York: Springer.
   Google Scholar
• Gertler, M., and P. Karadi. 2015. “Monetary Policy Surprises, Credit Costs, and Economic Activity.” American Economic Journal: Macroeconomics 7 (1):44–76. doi:10.1257/mac.20130329
   Web of Science ®Google Scholar
• Greenwood, R., and A. Shleifer. 2014. “Expectations of Returns and Expected Returns.” Review of Financial Studies 27 (3):714–46. doi:10.1093/rfs/hht082
   Web of Science ®Google Scholar
• Guo, H., C.-H. D. Hung, and A. Kontonikas. 2019. “The Fed and the Stock Market: A Tale of Sentiment States.” SSRN. DOI: 10.2139/ssrn.3184974.
   Google Scholar
• Guo, H., C.-H. D. Hung, and A. Kontonikas. 2021. “Investor Sentiment and the Pre-FOMC Announcement Drift.” Finance Research Letters 38 (c):101443. doi:10.1016/j.frl.2020.101443
   Google Scholar
• Guo, H., A. Kontonikas, and P. Maio. 2020. “Monetary Policy and Corporate Bond Returns.” The Review of Asset Pricing Studies 10 (3):441–89.
   Google Scholar
• Gupta, R., and C. Jooste. 2018. “Unconventional Monetary Policy Shocks in OECD Countries: How Important is the Extent of Policy Uncertainty?” International Economics and Economic Policy 15 (3):683–703. doi:10.1007/s10368-017-0380-8
   Google Scholar
• Gupta, R., F. Huber, and P. Piribauer. 2020. “Predicting International Equity Returns: Evidence from Time-Varying Parameter Vector Autoregressive Models.” International Review of Financial Analysis 68 (C):101456. doi:10.1016/j.irfa.2020.101456
   Web of Science ®Google Scholar
• Haitsma, R., D. Unalmis, and J. de Haan. 2016. “The Impact of the ECB’s Conventional and Unconventional Monetary Policies on Stock Markets.” Journal of Macroeconomics 48 (C):101–16. doi:10.1016/j.jmacro.2016.02.004
   Google Scholar
• Jordan, S. J., A. Vivian, and M. E. Wohar. 2017. “Forecasting Market Returns: Bagging or Combining?” International Journal of Forecasting 33 (1):102–20. doi:10.1016/j.ijforecast.2016.07.003
   Web of Science ®Google Scholar
• Jordan, S. J., A. Vivian, and M. E. Wohar. 2018. “Stock Returns Forecasting with Metals: Sentiment vs. Fundamentals.” The European Journal of Finance 24 (6):458–77. doi:10.1080/1351847X.2017.1323770
   Web of Science ®Google Scholar
• Kaplanski, G., H. Levy, C. Veld, and Y. Veld-Merkoulova. 2015. “Do Happy People Make Optimistic Investors?” Journal of Financial and Quantitative Analysis 50 (1–2):145–68. doi:10.1017/S0022109014000416
   Web of Science ®Google Scholar
• Keynes, J. M. 1936. The General Theory of Employment, Interest and Money. London: Macmillan.
   Google Scholar
• Kishor, N. K., and H. A. Marfatia. 2013. “The Time-Varying Response of Foreign Stock Markets to U.S. Monetary Policy Surprises: Evidence from the Federal Funds Futures Market.” Journal of International Financial Markets, Institutions and Money 24:1–24. doi:10.1016/j.intfin.2012.11.004
   Web of Science ®Google Scholar
• Kontonikas, A., R. MacDonald, and A. Saggu. 2013. “Stock Market Reaction to Fed Funds Rate Surprises: State Dependence and the Financial Crisis.” Journal of Banking & Finance 37 (11):4025–37. doi:10.1016/j.jbankfin.2013.06.010
   Web of Science ®Google Scholar
• Krippner, L. 2013. “Measuring the Stance of Monetary Policy in Zero Lower Bound Environments.” Economics Letters 118 (1):135–8. doi:10.1016/j.econlet.2012.10.011
   Web of Science ®Google Scholar
• Kurov, A. 2010. “Investor Sentiment and the Stock Market’s Reaction to Monetary Policy.” Journal of Banking & Finance 34 (1):139–49. doi:10.1016/j.jbankfin.2009.07.010
   Web of Science ®Google Scholar
• Lee, C., A. Shleifer, and R. H. Thaler. 1991. “Investor Sentiment and the Closed-End Fund Puzzle.” The Journal of Finance 46 (1):75–109. doi:10.1111/j.1540-6261.1991.tb03746.x
   Web of Science ®Google Scholar
• Limongi Concetto, C., and F. Ravazzolo. 2019. “Optimism in Financial Markets: Stock Market Returns and Investor Sentiments.” Journal of Risk and Financial Management 12 (2):85. doi:10.3390/jrfm12020085
   Web of Science ®Google Scholar
• Lutz, C. 2015. “The Impact of Conventional and Unconventional Monetary Policy on Investor Sentiment.” Journal of Banking & Finance 61:89–105. doi:10.1016/j.jbankfin.2015.08.019
   Web of Science ®Google Scholar
• Maio, P. F. 2014. “Another Look at the Stock Return Response to Monetary Policy Actions.” Review of Finance 18 (1):321–71. doi:10.1093/rof/rfs050
   Web of Science ®Google Scholar
• Marfatia, H. A. 2014. “Impact of Uncertainty on High-Frequency Response of the U.S. Stock Markets to the Fed’s Policy Surprises.” The Quarterly Review of Economics and Finance 54 (3):382–92. doi:10.1016/j.qref.2013.12.003
   Google Scholar
• Marfatia, H. A., R. Gupta, and S. M. Miller. 2020. “125 Years of Time-Varying Effects of Fiscal Policy on Financial Markets.” International Review of Economics & Finance 70 (C):303–20. doi:10.1016/j.iref.2020.07.011
   Google Scholar
• Mian, G. M., and S. Sankaraguruswamy. 2012. “Investor Sentiment and Stock Market Response to Earnings News.” The Accounting Review 87 (4):1357–84. doi:10.2308/accr-50158
   Web of Science ®Google Scholar
• Paul, P. 2020. “The Time-Varying Effect of Monetary Policy on Asset Prices.” The Review of Economics and Statistics 102 (4):690–704. doi:10.1162/rest_a_00840
   Web of Science ®Google Scholar
• Peersman, G., and F. Smets. 2001. “Are the Effects of Monetary Policy in the Euro Area Greater in Recessions than in Booms?.” ECB Working paper, No. 52.
   Google Scholar
• Pesaran, M. H., and R. Smith. 1995. “Estimating Long-Run Relationships from Dynamic Heterogeneous Panels.” Journal of Econometrics 68 (1):79–113. doi:10.1016/0304-4076(94)01644-F
   Web of Science ®Google Scholar
• Pierdzioch, C., and R. Gupta. 2020. “Uncertainty and Forecasts of U.S. Recessions.” Studies in Nonlinear Dynamics and Econometrics 24 (4):20180083.
   Web of Science ®Google Scholar
• Plakandaras, V., J. Cunado, R. Gupta, and W. E. Wohar. 2017. “Do Leading Indicators Forecast U.S. Recessions? A Nonlinear Re-Evaluation Using Historical Data.” International Finance 20 (3):289–300. doi:10.1111/infi.12111
   Web of Science ®Google Scholar
• Rapach, D. E., and G. Zhou. 2013. “Forecasting Stock Returns.” In Handbook of Economic Forecasting, 2 (Part a), edited by Graham Elliott, and Allan Timmermann, 328–83. Amsterdam: Elsevier.
   Google Scholar
• Rapach, D. E., J. K. Strauss, and G. Zhou. 2013. “International Stock Return Predictability: What is the Role of the United States?” The Journal of Finance 68 (4):1633–62. doi:10.1111/jofi.12041
   Web of Science ®Google Scholar
• Rapach, D. E., M. E. Wohar, and J. Rangvid. 2005. “Macro Variables and International Stock Return Predictability.” International Journal of Forecasting 21 (1):137–66. doi:10.1016/j.ijforecast.2004.05.004
   Web of Science ®Google Scholar
• Simo-Kengne, B. D., S. M. Miller, R. Gupta, and M. Balcilar. 2016. “Evolution of Monetary Policy in the US: The Role of Asset Prices.” The Journal of Real Estate Finance and Economics 52 (3):226–43. doi:10.1007/s11146-015-9512-5
   Web of Science ®Google Scholar
• Stambaugh, R. F., J. Yu, and Y. Yuan. 2012. “The Short of It: Investor Sentiment and Anomalies.” Journal of Financial Economics 104 (2):288–302. doi:10.1016/j.jfineco.2011.12.001
   Web of Science ®Google Scholar
• Stock, J. H., and M. W. Watson. 2003. “Forecasting Output and Inflation: The Role of Asset Prices.” Journal of Economic Literature 41 (3):788–829. doi:10.1257/jel.41.3.788
   Web of Science ®Google Scholar
• Tiwari, A. K., J. Cunado, R. Gupta, and M. E. Wohar. 2019. “Are Stock Returns an Inflation Hedge for the UK? Evidence from a Wavelet Analysis Using over Three Centuries of Data.” Studies in Nonlinear Dynamics and Econometrics 23 (3):20170049.
   Web of Science ®Google Scholar