A Financial Crisis Study: How Fiscal And Monetary Policy Affects The Stock Market Returns Considering The Specific Counties

This paper measures the impacts of fiscal and monetary policy adjustments on stock markets in U.S., Sweden, and China, during the financial crisis of 2007-2009. The purpose of this paper is to gauge the direction and magnitude of stock market responses to the policy announcements and compare the effects of policies across these three countries. A four-year period prior to financial crisis is selected as benchmark phase to contrast the impact during crisis. The event study methodology is conducted to this investigation. Our results indicate that when facing the crisis, policy adjustments lead to diversified response among different countries. It depends on the features of a country such as the scale of economy, the degree of economic freedom, and vise versa determinates the country’s the preference on policy instruments.