Table 5 Responses of unexpected equity...

Table 5

Responses of unexpected equity excess return components to contractionary MP shocks

News	External MP instruments
Components	FF4	$E X O_{L S}$	$E X O_{J K}$	$F I S_{L S}$	$F I S_{J K}$
(a) MP indicator: changes in the effective FFR
Excess return	−2.3451* (1.3862)	−2.6592** (1.3866)	−3.6857*** (1.3756)	0.2144 (1.3881)	2.4528** (1.3697)
RP news	0.4273 (1.0618)	0.5078 (1.0688)	1.3742 (1.0612)	−0.4751 (1.0479)	−1.6208** (1.0582)
RR news	0.2512* (0.1706)	0.2566* (0.1721)	0.2963* (0.1725)	0.0409 (0.1682)	−0.1404 (0.1732)
CF news	−1.6667 (0.9843)	−1.8947* (0.9896)	−2.0152** (1.0008)	−0.2198 (1.0102)	0.6916 (0.9779)
(b) MP indicator: changes in the shadow FFR by Wu and Xia (2016)
Excess return	−2.2297* (1.4201)	−2.6626** (1.4064)	−3.6487*** (1.4194)	0.303 (1.4289)	2.5288** (1.4111)
RP news	0.5132 (1.1031)	0.7725 (1.0929)	1.5135 (1.0974)	−0.5952 (1.1069)	−1.616* (1.1017)
RR news	0.2279 (0.1745)	0.2448* (0.1724)	0.2827* (0.1723)	0.0493 (0.1734)	−0.1496 (0.1742)
CF news	−1.4887 (1.0421)	−1.6453* (1.0397)	−1.8525** (1.0413)	−0.2429 (1.0471)	0.7632 (1.0258)
(c) MP indicator: changes in the shadow FFR by Krippner (2013)
Excess return	−2.2649** (1.4186)	−2.683** (1.4131)	−3.5732*** (1.4153)	0.2416 (1.4277)	2.518* (1.4292)
RP news	0.5437 (1.1361)	0.7333 (1.1293)	1.4371 (1.145)	−0.4726 (1.1497)	−1.669* (1.136)
RR news	0.2592* (0.1816)	0.2753* (0.179)	0.3048** (0.1811)	0.0544 (0.1825)	−0.1431 (0.1815)
CF news	−1.462* (1.0735)	−1.6745** (1.0829)	−1.8313** (1.0711)	−0.1767 (1.0774)	0.7059 (1.0709)

News	External MP instruments
Components	FF4	$E X O_{L S}$	$E X O_{J K}$	$F I S_{L S}$	$F I S_{J K}$
(a) MP indicator: changes in the effective FFR
Excess return	−2.3451* (1.3862)	−2.6592** (1.3866)	−3.6857*** (1.3756)	0.2144 (1.3881)	2.4528** (1.3697)
RP news	0.4273 (1.0618)	0.5078 (1.0688)	1.3742 (1.0612)	−0.4751 (1.0479)	−1.6208** (1.0582)
RR news	0.2512* (0.1706)	0.2566* (0.1721)	0.2963* (0.1725)	0.0409 (0.1682)	−0.1404 (0.1732)
CF news	−1.6667 (0.9843)	−1.8947* (0.9896)	−2.0152** (1.0008)	−0.2198 (1.0102)	0.6916 (0.9779)
(b) MP indicator: changes in the shadow FFR by Wu and Xia (2016)
Excess return	−2.2297* (1.4201)	−2.6626** (1.4064)	−3.6487*** (1.4194)	0.303 (1.4289)	2.5288** (1.4111)
RP news	0.5132 (1.1031)	0.7725 (1.0929)	1.5135 (1.0974)	−0.5952 (1.1069)	−1.616* (1.1017)
RR news	0.2279 (0.1745)	0.2448* (0.1724)	0.2827* (0.1723)	0.0493 (0.1734)	−0.1496 (0.1742)
CF news	−1.4887 (1.0421)	−1.6453* (1.0397)	−1.8525** (1.0413)	−0.2429 (1.0471)	0.7632 (1.0258)
(c) MP indicator: changes in the shadow FFR by Krippner (2013)
Excess return	−2.2649** (1.4186)	−2.683** (1.4131)	−3.5732*** (1.4153)	0.2416 (1.4277)	2.518* (1.4292)
RP news	0.5437 (1.1361)	0.7333 (1.1293)	1.4371 (1.145)	−0.4726 (1.1497)	−1.669* (1.136)
RR news	0.2592* (0.1816)	0.2753* (0.179)	0.3048** (0.1811)	0.0544 (0.1825)	−0.1431 (0.1815)
CF news	−1.462* (1.0735)	−1.6745** (1.0829)	−1.8313** (1.0711)	−0.1767 (1.0774)	0.7059 (1.0709)

Note(s): The table reports responses of unexpected equity excess return components to contractionary MP shocks. Excess return is the unexpected CRSP excess return. RP, RR and CF news are its decomposition into risk premium news, real rate news and cash-flows news, respectively. We apply three MP indicators in turns, and show its results in each panel. Panel (a) applies the change in the effective FFR, (b) change in the shadow rate of Wu and Xia (2016), and (c) change in the shadow rate of Krippner (2013). In each panel, we apply five different external MP instrument variables: FF4 is the high-frequency price change of the three-month ahead Fed fund futures around FOMC announcements. $E X O_{L S} a n d F I S_{L S} (E X O_{J K} and F I S_{J K})$ are its decomposition into exogenous MP shock and Fed information shock by Lakdawala and Schaffer (2019), respectively (Jarocinski and Karadi, 2020). Bootstrapped standard errors are shown between parentheses. ***, **, * denote significance at the 1, 5 and 10% levels, respectively

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