The effect of changing monetary policy regimes on stock prices

This paper revisits an old issue: the linkage between money announcements and stock prices. More specifically, it is shown that the magnitude of the time-varying response of stock prices to an unanticipated money announcement is mainly driven by agents' expectations of the Federal Reserve's response to the deviation of the actual money supply from prespecified target. The inference is, the magnitude of the response of stock prices to economic announcements depends on expectations about the announcements and the monetary policy response.