Individual Stock Returns and Monetary Policy: Evidence from Japanese Data


This paper examines the effects of Japanese monetary policy on equity markets using firm-level data. Our objective is to investigate whether there exist heterogeneous responses of stock returns among firms, and if any, whether firm-specific characteristics associated with the theories of monetary transmission mechanism can account for such heterogeneity. We find that a 1% surprise cut in the call-rate target increases stock returns by 3% on average, but this effect is significantly larger for firms with high capital intensity, low openness, high leverage, high interest payment burden, and low working capital. It is also found that monetary policy had greater effects on equity markets in the recession period of the 1990s than the boom period of the late 1980s.

Keywords: Monetary policy; Individual stock returns; Heterogeneity; Event study; Monetary transmission mechanism.

JEL Classification: E52; E44;

Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059

School of Economics, Osaka Prefecture University