Stock Market's Assessment of Monetary Policy Transmission: The Cash Flow Effect

We show that firm liability structure and associated cash flows matter for behavior financial market participants price stocks accordingly. Stock reactions to monetary policy announcements depend on the type maturity of debt issued by firms forward guidance provided Fed, both at away from zero lower bound. Further, marginal stock participant knows current structures does not rely rules thumb. The flow exposure time actions predicts future investment, assets, net worth, clearly violating Modigliani-Miller theorem.