Past literature has studied the impact of monetary policy and uncertainty on stock returns. To
understand the linkage further, we introduced an additional layer in this relationship by defining a
monetary policy worry (MPW) variable to act like a wedge between the stock market response and the
underlying monetary policy change and uncertainty based on psychological theory about human
behavior in times of uncertainty. For this purpose, we defined and constructed an MPW index and
examined the information content of the index. We provided empirical evidence of how stock market
returns and volatilities respond to MPW.
