Unraveling the Impact: An Event Study of the Swedish Stock Market Reactions to the Riksbank's Monetary Policy Announcements

Abstract: This study investigates the impact of the Riksbank's monetary policy announcements on Swedish equity returns. Using a methodology developed by Kuttner (2001) and Fransson and Tysklind (2016) we distinguish between expected and unexpected changes to the Riksbank rate and study how the components affect equity prices. Our findings suggest there is a significant negative relationship between unexpected changes to the Riksbank rate and OMX Stockholm 30 Index returns. This relationship is however not consistently robust when dividing into subsamples. We find that the presence of monetary policy announcements from the Federal Reserve and European Central Bank as well as Statistics Sweden inflation announcements affect both the magnitude and significance of Swedish equity returns to Riksbank monetary policy announcements. We also document that the introduction of alternative monetary policy measurements such as quantitative easing has reduced the impact Riksbank rate changes have on Swedish equity returns.