Arbeitspapier

Stock Market's Assessment of Monetary Policy Transmission: The Cash Flow Effect

We show that firm liability structure and associated cash flow matter for firm behavior, and that financial market participants price stocks accordingly. Looking at firm level stock price changes around monetary policy announcements, we find that firms that have more cash flow exposure see their stock prices affected more. The stock price reaction depends on the maturity and type of debt issued by the firm, and the forward guidance provided by the Fed. This effect has remained intact during the ZLB period. Importantly, we show that the effect is not a rule of thumb behavior outcome and that the marginal stock market participant actually studies and reacts to the liability structure of firm balance sheets. The cash flow exposure at the time of monetary policy actions predicts future net worth, investment, and assets, verifying the stock pricing decision and also providing evidence of cash flow effects on firms’ real behavior. The results hold for S&P500 firms that are usually thought of not being subject to tight financial constraints.

Sprache
Englisch

Erschienen in
Series: CESifo Working Paper ; No. 7898

Klassifikation
Wirtschaft
Interest Rates: Determination, Term Structure, and Effects
Financial Markets and the Macroeconomy
Monetary Policy
Central Banks and Their Policies
Information and Market Efficiency; Event Studies; Insider Trading
Thema
cash flow effect of monetary policy
investor sophistication
financial frictions
stock pricing

Ereignis
Geistige Schöpfung
(wer)
Gürkaynak, Refet S.
Karasoy-Can, Hatice Gökçe
Lee, Sang Seok
Ereignis
Veröffentlichung
(wer)
Center for Economic Studies and ifo Institute (CESifo)
(wo)
Munich
(wann)
2019

Handle
Letzte Aktualisierung
10.03.2025, 11:43 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Gürkaynak, Refet S.
  • Karasoy-Can, Hatice Gökçe
  • Lee, Sang Seok
  • Center for Economic Studies and ifo Institute (CESifo)

Entstanden

  • 2019

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