The effect of monetary policy on active investments

Detta är en D-uppsats från Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Sammanfattning: This paper examines the effects of U.S. monetary policy announcements in the aftermath of the subprime crisis on financial analysts' ability to predict stock prices. We study such effects, if any, using Bloomberg data on equity analyst 12-month target prices and subsequent realized stock prices. We perform event studies to test whether predictability changed as a result of policy announcements. The monetary policy event dates are chosen based on the surprise effect they had on the markets. Our results show a lower stock predictability than normal during policy announcements. However, when taking into account the general volatility of analyst's predictability this abnormal effect is quite small. Hence, we cannot conclude anything precise as to whether central bankers' pervasive presence in financial markets has an unprecedented impact on equity analysts' ability to predict stock prices.

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