An Empirical Study of Monetary Policy Transmission Through Floating Rate Corporate Debt
Abstract
Considering the contemporary shift in the interest rate regime
and the high levels of corporate debt in the US market, we show
that monetary policy surprises have an impact on stock returns. This
impact is dominated by a surprise in Fed forward guidance. By
examining the liability structure of S&P 500 firms from 2005 to 2022,
our results demonstrate the effectiveness of the cash flow channel.
These balance sheet effects reveal that investors perceive that cash
flows of firms with floating rate debt decline more in tightening policy
surprises than firms with fixed rate debt, thereby, negatively affecting
stock returns. Hence, cash flows. However, extending a methodology
due Gürkaynak, Karasoy-Can, and Lee (2022), debt maturity fails to
enhance the resolution of the cash flow channel. Similarly, we fail to
observe the effectiveness of hedging in moderating the negative impact
of the cash flow channel on stock returns.
Degree
Master 2-years
Other description
MSc in Finance
Collections
View/ Open
Date
2023-06-29Author
JAWAN BAKHSH, BEHZAD
MUTISO MULI, DENNIS
Keywords
Monetary policy surprise
Monetary policy transmission
Cash flow channel
Fed
Federal Open Market Committee
Forward guidance
SEC filings
Hedging
Bank Debt
Floating rate debt
Series/Report no.
2023:199
Language
eng