Asymmetric effects of monetary policy on an emerging stock market

Guowen Han, Yongjin Wu, Warren Young

Research output: Contribution to journalArticlepeer-review

9 Scopus citations


This paper examines the relationship between monetary policy and the stock market based on data from two stock indices in China - the Shanghai Composite Index and Shenzhen Composite Index. The result shows only unanticipated monetary policy can affect the stock return significantly. Based on anticipated effects, we examine whether monetary policy has asymmetric effects on the stock market by using a linear model with a dummy variable and a modified Markov-switching model respectively. Our empirical results support existing evidence for developed markets, suggesting that monetary policy has a significant impact on stock returns in bear-market periods, whereas the impact is weak and insignificant in bull-market periods. Given this, we surmise that investor sentiments and borrowing constraints are the main causes of the asymmetric effects found.

Original languageEnglish
Pages (from-to)192-206
Number of pages15
JournalInternational Journal of Monetary Economics and Finance
Issue number3
StatePublished - 1 Dec 2014

Bibliographical note

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Copyright © 2014 Inderscience Enterprises Ltd.


  • Anticipated effects
  • Asymmetric effects
  • Markov-switching model
  • Monetary policy


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