Monetary Policy Shocks' Impact on Asset Prices and Sectors' Heterogeneity

Abstract

This thesis examines the response of various financial assets to Monetary Policy Shocks during the FOMC announcement days in order to assess the magnitude of these impacts over the period January 2000 to September 2019. In doing so, we used a construction of Shock series from the literature that uses High Frequency Identification, while we used daily data for asset returns except for a shorter sample analysis, for which hourly data was available. We found that an unexpected increase in US interest rates affects the yield curve in a “hump-shaped” manner and impacts global equity markets negatively, with significant heterogeneity in the SP500 sectors’ price response. Further analyses are done to compare our results with the literature’s benchmarks and to explain the driving factors of sectors’ cross-sectional differences. Based on our studies these differences are mainly driven by the Market Beta of the sectors, while some sector’s responses are probably justified by their particular intrinsic characteristics. We also found interesting results over the period of January 2012 to September 2019, using hourly returns of SP500 around the FOMC press conference, with the first hourly returns strongly negatively impacted, while the second hour impact on returns is in the opposite direction.