Financial Markets and Portfolio Management

, Volume 23, Issue 2, pp 111–135

The impact of monetary policy surprises on asset return volatility: the case of Germany



This paper investigates the impact of monetary policy surprises by the FED or Bundesbank/ECB on the return volatility of German stocks and bonds using a GARCH-M model. We show that stock return volatility is susceptible to monetary policy surprises in the United States, whereas monetary policy surprises in the Euro zone matter for bond return volatility. These findings are robust for other Euro zone stock markets, but not significant for other Euro zone bond markets. The empirical evidence also suggests that monetary policy surprises have larger effects on German stock return volatility in bear markets than in bull phases. Moreover, our results support the claim that stock return volatility can be negatively correlated with stock returns, contradicting predictions made by many asset pricing models (e.g., CAPM or ICAPM) and the empirical finding of an insignificant relationship often reported in the literature.


Monetary policy surprises Asset return volatility GARCH-M 

JEL Classification

E52 E58 G15 C32 


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Copyright information

© Swiss Society for Financial Market Research 2009

Authors and Affiliations

  1. 1.Eyb & Wallwitz Vermögensmanagement GmbHMunichGermany

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