New Research on the Impact of Modern Monetary Policy on Equity Markets During the Covid-19 Pandemic Wins 2022 Graham and Dodd Award of Excellence

CFA Institute, the global association of investment professionals, announces the winners of the 2022 Graham and Dodd Awards of Excellence. These prestigious awards are bestowed annually for the best research articles published in the Financial Analysts Journal, the flagship publication of CFA Institute, and recognize the contribution of the articles to the practice of investment management. The awards are named in honor of Benjamin Graham and David L. Dodd for their enduring contributions to the field of investment analysis.

The 2022 winner of the Graham and Dodd Top Award is Free Markets to Fed Markets: How Modern Monetary Policy Impacts Equity Markets, Financial Analysts Journal, by Tālis J. Putniņš, Professor of Finance at the University Technology of Sydney and the Stockholm School of Economics in Riga.

The research addresses the substantial impact of the most aggressive US monetary policy on record when the Federal Reserve (the Fed) doubled its balance sheet during the COVID-19 pandemic. The research discovers a strong relationship between the Fed’s balance sheet and stock market prices; it finds that the Fed responds more strongly (through its asset purchases) to negative stock market returns, whereas the stock market is more sensitive to the Fed’s balance sheet contractions than it is to balance sheet expansions. The research finds that the timing of the market reactions suggest that the stock market largely responds to realized balance-sheet changes, as opposed to announcement effects that would imply an earlier reaction. Further, the Fed’s balance sheet expansion during COVID-19 explains at least one-third of the stock market’s rebound following its crash in March 2020.

The research will help asset managers model the actions of the Fed to better understand the effects of contemporary monetary policy on portfolio risk and return. The author shows that, particularly in times of macroeconomic dislocation, the bilateral feedback between asset markets and monetary authorities is of first-order importance to investors and policymakers.

The 2022 winner of the Graham and Dodd Scroll Award is Which Corporate ESG News Does the Market React To?, Financial Analysts Journal, by George Serafeim and Aaron Yoon. Professor Serafeim is the Charles M. Williams Professor of Business Administration at Harvard Business School where he co-leads the Climate and Sustainability Impact AI Lab; Professor Yoon is Assistant Professor of Accounting and Information Management at Northwestern University – Kellogg School of Management.

The article analyzes a unique dataset that creates an ESG news sentiment score by tracking daily ESG news across more than 3,000 companies and examines whether and how investors react to the release of different ESG-related information. The research found that prices react only to industry-specific financially material ESG news, and that the price reaction is larger for ESG news that is positive, has received more news coverage, and is related to social capital issues. 

Margaret Franklin, CFA, President and CEO, CFA Institute, comments:

“For more than 60 years, the Graham and Dodd Awards have recognized a select number of Financial Analyst Journal articles for their outstanding contribution to the global body of rigorous and peer-reviewed investment research. I’m thrilled by the caliber of research that these annual awards continue to surface. These winning articles are a meaningful addition to our collective knowledge as industry practitioners. I highly commend them to those who have a deep interest and curiosity about the functioning of investment markets.” 

William Goetzmann, Executive Editor of Financial Analysts Journal, comments:

“The recipients of this year’s Graham and Dodd awards impressed the Financial Analysts Journal editorial team and panel of judges with research that is innovative, actionable, well-written, timely, and of interest to both investment practitioners and academia. These works deliver important data-rich learnings and observations about markets, investor behaviour, and monetary policy, during one of the most challenging economic periods in modern history.”

The research articles for current and previous winners can be accessed here.