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The Role of Monetary Policy in Investment Management

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Investors have long appreciated monetary policy's influence on investment performance. Little research exists, however, that rigorously examines the connection between monetary policy and investment performance. In this Research Foundation monograph, Gerald R. Jensen; Robert R. Johnson, CFA; and Jeffrey M. Mercer provide a thorough investigation of the relation between directional changes in the discount rate and returns on various asset classes. In perhaps their most remarkable finding, they demonstrate that for U.S. stocks, an initial reduction in the discount rate is followed by several months of above–average returns and an initial discount–rate increase is followed by several months of below–average returns. The authors also examine how their findings can be used to enhance investment performance.

About the Author(s)

Gerald R. Jensen CFA

Gerald R. Jensen, CFA, is professor of finance at the Heider College of Business, Creighton University, Omaha, Nebraska.

Robert R. Johnson CFA

Robert R. Johnson, CFA, is president and CEO of the American College of Financial Services, Bryn Mawr, Pennsylvania.

Jeffrey M. Mercer