The Impact of Riksbank Policy Rate Announcements on Stock Market: An Event Study of Swedish Firms

Abstract

This thesis examines how Swedish stock market returns respond to monetary policy announcements by the Riksbank between 2015 and 2024. An event study and cross-sectional OLS regressions are employed as complementary empirical approaches. Our results show that policy rate increases correspond to negative abnormal returns while rate decreases correspond to positive abnormal returns. The negative response to rate increases is larger in magnitude than the positive response to rate decreases. Effects diminish and disappear over wider event windows, consistent with the semi-strong form of the Efficient Market Hypothesis. Leverage emerges as the primary determinant of variation in market reactions across firms. Higher leverage is associated with more negative abnormal returns. Firm size also plays a significant role across all event windows. The robustness analysis reveals that leverage becomes the dominant explanatory variable in the post-COVID period. Our findings provide updated and country-specific evidence consistent with asset pricing theory, the monetary policy transmission mechanism, and the credit channel literature.