The thesis investigates whether Federal Reserve monetary policy has asymmetric effects on the U.S. stock returns in different uncertainty environments. Different measures of uncertainty are examined and two types of uncertainty are identified: uncertainty of the state of the economy and uncertainty of monetary policy. I find evidence consistently shows that the stock returns respond more significantly when uncertainty of the state of the economy is high, but less significantly when uncertainty of monetary policy is high. The most responsive scenario is when investors are highly uncertain about the state of the economy, but less concerned about whether Federal Reserve correctly assesses the situation and implement appropriate monetary policy. In addition, cross-sectional analysi...[ Read more ]

The thesis investigates whether Federal Reserve monetary policy has asymmetric effects on the U.S. stock returns in different uncertainty environments. Different measures of uncertainty are examined and two types of uncertainty are identified: uncertainty of the state of the economy and uncertainty of monetary policy. I find evidence consistently shows that the stock returns respond more significantly when uncertainty of the state of the economy is high, but less significantly when uncertainty of monetary policy is high. The most responsive scenario is when investors are highly uncertain about the state of the economy, but less concerned about whether Federal Reserve correctly assesses the situation and implement appropriate monetary policy. In addition, cross-sectional analysis suggests that uncertainty at the macroeconomic level has important impact on uncertainty of forecasting the firm's future performance. The sensitivity of individual firm's analyst forecast dispersion to uncertainty of the state of the economy can explain cross-sectional variation of the macroeconomic uncertainty effects on how the firms' stock returns react to Federal Reserve monetary policy announcements.