Monetary Policy and Equity Price: An Event Study from Denmark

Kristian Norling & Andreas Andersen

Student thesis: Master thesis


Monetary policy and its effect on capital markets has been a subject of great interest in recent years, especially since the Great Recession unfolded in 2008, with central banks across the globe subsequently embarking on unprecedented measures to enhance stability. The conventional wisdom within economics and a substantial part of the recent research regarding unconventional monetary policy, both suggest, all else equal, that there is a negative relationship between a looser monetary policy, i.e. a lower monetary policy interest rate, and asset prices. When applying this to Danish monetary policy and Danish equity prices during the period 2008-2015, we initially, and to our surprise, find that there exists a positive relationship. After a further investigation of the matter, we demonstrate that this can be attributed to the European Debt Crisis and the uncertainty that surrounded it. As such, we find that the conventional and expected relationship holds, albeit in a more indirect manner. We further find that the unconventional monetary policies conducted by Danmarks Nationalbank provide support for the conventional relationship between monetary policy and equity prices, a majority of the recent research regarding unconventional monetary policy's effect on equity prices, and the development of Danish equity valuations in the period 2014- 2015.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2015
Number of pages115