On the effect of full-fledged IT adoption on stock returns and their conditional volatility: Evidence from propensity score matching

Abstract

Applied research on central banking has attempted to assess the effects of adopting full-fledged inflation targeting on several macroeconomic variables, while the impact of financial variables has been under-researched so far. This paper fills this gap by assessing and quantifying the effect of full-fledged inflation targeting on stock returns and their conditional volatility. For this purpose, it implements the Propensity Score Matching (PSM), which is immune against reverse-causality, self-selection and omitted-variable biases, on a sample of advanced countries over 1990:Q1–2015:Q1 period. The results suggest that full-fledged inflation targeting is effective in boosting stock market returns and reducing volatility.