The Reaction of Stock Prices to Unanticipated Changes in Money

32 Pages Posted: 14 Feb 2002 Last revised: 15 Aug 2022

See all articles by Douglas K. Pearce

Douglas K. Pearce

North Carolina State University

V. Vance Roley

University of Hawaii at Manoa - Shidler College of Business; National Bureau of Economic Research (NBER)

Date Written: August 1982

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.

Suggested Citation

Pearce, Douglas K. and Roley, V. Vance, The Reaction of Stock Prices to Unanticipated Changes in Money (August 1982). NBER Working Paper No. w0958, Available at SSRN: https://ssrn.com/abstract=300732

Douglas K. Pearce (Contact Author)

North Carolina State University ( email )

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Raleigh, NC 27695
United States

V. Vance Roley

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way
Honolulu, HI 96822
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States