The Differential Impact of Monetary Policy Shocks on Growth and Value Stocks, Evidence from an event study approach

Sammanfattning

We attempt to measure mispricing in different types of equities during macroeconomic shocks. Building on previous research establishing the relationship between stock returns and macroeconomic conditions and behavioural finance perspectives of investor sentiment, we show that responses of two distinct samples, namely, growth and value-oriented equities respond heterogeneously to policy shocks. Further, we empirically test the explanatory power of firm characteristics and sentiment as determinant of stock return response. The findings show that growth equities experience stronger, but not necessarily more directional, mispricing around the Federal Open Market Committee's (FOMC) decisions, during 2022 - 2023. Investor sentiment exhibits statistical significance in explaining this difference only in the ±2 day observation window. The research provides meaningful extensions to multiple previous finance research papers, among them, Barberis et al. A Model of Investor Sentiment (1998), Da et al. In Search of Attention (2011), and Fama & French A five-factor asset pricing model (2015).