City Research Online

Does Central Bank Tone Move Asset Prices?

Schmeling, M. and Wagner, C. (2015). Does Central Bank Tone Move Asset Prices?. SSRN.

Abstract

We explore whether the tone of central bank communication matters for asset prices and find that tone changes have a significant effect on equity returns. Stock prices increase when tone becomes more positive and vice versa. Moreover, we find that positive tone changes are associated with increasing bond yields, lower implied equity volatility, lower variance risk premia, and lower credit spreads. Since we also show that tone changes are largely unrelated to current and future economic fundamentals, our results suggest that central bank tone matters for asset prices through a risk-based channel

Publication Type: Monograph (Working Paper)
Publisher Keywords: central bank communication, stock returns, return predictability, bond yields, textual analysis
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/16865
[img]
Preview
Text - Published Version
Download (709kB) | Preview

Export

Downloads

Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login