The Impact of Conventional and Unconventional Monetary Policy on Investor Sentiment

Abstract

This paper examines the relationship between monetary policy and investor sentiment across conventional and unconventional monetary policy regimes. During conventional times, we find that a surprise decrease in the fed funds rate leads to a large increase in investor sentiment. Similarly, when the fed funds rate is at its zero lower bound, research results indicate that expansionary unconventional monetary policy shocks also have a large and positive impact on investor mood. Together, our findings highlight the importance of both conventional and unconventional monetary policy in the determination of investor sentiment.

Publication
Journal of Banking & Finance 61 (2015): 89-105.
Date