NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Reaction of Stock Prices to Unanticipated Changes in Money

Douglas K. Pearce, V. Vance Roley

NBER Working Paper No. 958 (Also Reprint No. r0460)
Issued in August 1982
NBER Program(s):   ME

This paper investigates the short-run effect of unexpected changes in the weekly money stock on common stock prices. Survey data on money market participants' forecasts of money changes are employed to construct the measure of unanticipated movements in the money stock. The results indicate that an unexpected increase in money depresses stock prices and, consistent with the efficient markets hypothesis, only the unexpected part of the weekly money announcement causes stock price fluctuations. The October 1979 change in Federal Reserve operating procedures appears to have made stock prices somewhat more sensitive to large money surprises.

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Document Object Identifier (DOI): 10.3386/w0958

Published: Pearce, Douglas K. and V. Vance Roley. "The Reaction of Stock Prices to Unanticipated Changes in Money: A Note." Journal of Finance, editor Michael Brennan, Waverly Press, Inc. Vol. 38, No. 4, (September 1983), pp. 132 3-1333.

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