Financial Markets and Portfolio Management

, Volume 23, Issue 4, pp 401–410

Monetary policy shocks and stock returns: evidence from the British market


  • A. Gregoriou
    • Norwich Business SchoolUniversity of East Anglia
    • Department of EconomicsUniversity of Glasgow
  • R. MacDonald
    • Department of EconomicsUniversity of Glasgow
  • A. Montagnoli
    • Department of EconomicsUniversity of Stirling

DOI: 10.1007/s11408-009-0113-2

Cite this article as:
Gregoriou, A., Kontonikas, A., MacDonald, R. et al. Financ Mark Portf Manag (2009) 23: 401. doi:10.1007/s11408-009-0113-2


This paper examines the impact of anticipated and unanticipated interest rate changes on aggregate and sectoral stock returns in the United Kingdom. The monetary policy shock is generated from the change in the 3-month sterling LIBOR futures contract. Results from time-series and panel analysis indicate an important structural break in the relationship between stock returns and monetary policy shifts. Specifically, whereas before the credit crunch, the stock market response to both expected and unexpected interest rate changes is negative and significant; the relationship becomes positive during the credit crisis. The latter finding highlights the inability, so far, of monetary policymakers to reverse, via interest rate cuts, the negative trend observed in stock prices since the onset of the credit crisis.


Asset pricesMonetary policyPanel data

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© Swiss Society for Financial Market Research 2009