UK stock returns and the impact of domestic monetary policy shocks

Don Bredin, Stuart Hyde, Dirk Nitzsche, Gerard O'Reilly

Research output: Contribution to journalArticlepeer-review


We investigate the influence of changes in UK monetary policy on UK stock returns and the possible reasons behind such a response. Firstly, we conduct an event study to assess the impact of unexpected changes in monetary policy on aggregate and sectoral stock returns. The decomposition of unexpected changes in the policy rate is based on futures markets data. Secondly, using a variance decomposition in the spirit of Campbell (1991) we attempt to identity the channels behind the response of stock returns to monetary policy surprises. The variance decomposition results indicate that the monetary policy shock leads to a persistent negative response in terms of future excess returns for a number of sectors. © 2007 Blackwell Publishing Ltd.
Original languageEnglish
Pages (from-to)872-888
Number of pages16
JournalJournal of Business Finance and Accounting
Issue number5-6
Publication statusPublished - Jun 2007


  • Interest rates
  • Monetary policy
  • Stock market


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