Variations in effects of monetary policy on stock market returns in the past four decades

Stock prices are sensitive to monetary policy. However, the sensitivities are not stable over time. A drastic change in monetary policy can alter effects of monetary policy on stock returns. This study finds that stock prices can be affected by current changes, unexpected changes, or near-future changes in the funds/discount rates, due to different policy goals or targets in different periods. Specifically, this study provides empirical evidence that monetary policy influences the stock market in different ways in the 1960s, the 1970s, the Volcker and Greenspan periods.