Stock Markets and Monetary Policies
I think at the outset you have to make the distinction between the real interest rate and the nominal interest rate. The nominal interest rate is the real interest rate less inflation. Assuming the money supple curve is a vertical line in M-r space, then a shift of the line to the right (as indicated by a monetary expansion) implies a decrease in the nominal interest rate. Some books make the distinction between money demand being dependent on nominal interest rates, but it makes intuitively more sense that money demand be a function of real interest rate rather than nominal. The real interest rate decreases as the nominal return on assets stays constant but the price level increases (increase in inflation as a result of the monetary expansion). Remember that the price of a stock in a perfect world is the net present value of all future dividends, discounted by real interest rate. As this interest rate decreases, we discount stocks less, and hence price increases. This is the intuition behind the inverse relationship between asset prices and interest rates. This however, is a short run effect, so stock prices increase in the short run. When the real interest rate returns to its original level in the medium run, the stock prices decrease again. In short, the fluctuations in stock prices reflect fluctuations in interest rate. (the illustration is simplest for a fixed coupon bond that pays C every period). Basically, it all depends when you examine the price.