Monetary Policy And The Cross-Section Of Equity Returns: Small Versus Large And Value Versus Growth

This paper analyzes the effects of monetary policy shocks over the cross-section of equity returns, differentiating between small and large stocks and value versus growth stocks. Using three different proxies for monetary policy, their results document a contemporaneous impact of changes in the Federal Funds rate that is significantly larger for the returns of small stocks relative to large stocks, and for value stocks relative to growth stocks. In addition, they find that the dispersion in the responses to monetary shocks is mostly explained by the effects on portfolio cash flow news, rather than portfolio discount rate news.