Sentiment Regimes and Reaction of Stock Markets to Conventional and Unconventional Monetary Policies: Evidence from OECD Countries

Oguzhan Cepni, Rangan Gupta, Ji Qiang*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


In this paper, we investigate how conventional and unconventional monetary policy shocks affect the stock market of eight advanced economies, namely, Canada, France, Germany, Japan, Italy, Spain, the U.K., and the U.S., conditional on the state of sentiment. In this regard, we use a panel vector auto-regression (VAR) with monthly data (on output, prices, equity prices, metrics of monetary policies, and consumer and business sentiments) over the period of January 2007 till July 2020, with the monetary policy shock identified through the use of both zero and sign restrictions. We find robust evidence that, compared to the low investor sentiment regime, the reaction of stock prices to expansionary monetary policy shocks is stronger in the state associated with relatively higher optimism, both for the overall panel and the individual countries (with some degree of heterogeneity). Our findings have important implications for academicians, investors, and policymakers.
Original languageEnglish
JournalJournal of Behavioral Finance
Number of pages17
Publication statusPublished - 27 Sep 2021

Bibliographical note

Epub ahead of print. Published online: 27 Sep 2021.


  • Conventional and unconventional monetary policies
  • Equity prices
  • Sentiment
  • OECD countries
  • Panel VAR
  • Zero and sign restrictions

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