U.S. Monetary Policy, Monetary Aggregates and S&P 500 Stock Prices: An Empirical Analysis, 2009-2016

After the 2008 recession, the U.S. Federal Reserve Bank undertook massive quantitative easing in order to shore up the financial markets and facilitate economic growth. In this study I examine the relationship between money supply growth and the expansion of financial markets with a particular focus on S&P 500 stock returns. I test the hypothesis that stock prices covary directly with money supply growth i.e. R=A+B(MS) where R is the stock return, MS is the money supply, and A and B are the equation perimeters. I expect B to be greater than zero. Three measures of the money supply are used in the regression analysis: (1) the adjusted monetary base, (2) M1 money supply, and (3) M2 money supply. The time period 2009-2016 is considered to be a period of aggressive monetary easing.https://ecommons.udayton.edu/stander_posters/1962/thumbnail.jp