If any more evidence were needed that investor psychology is a key determinant of share price performance, one needs look no further than the trade in Australian bank shares over the next month.

Bank shares, in the month running up to the date at which new shareholders are not entitled to the next dividend, deliver returns in excess of what can be justified purely in financial terms.

This is especially the case in the current bear market where investors value a bird in the hand well in excess of one in the bush.

Indeed, according to Macquarie research, banks since 1996 have delivered an average return of 3.6% in the 30 days before their ex-dividend date.

The performance of the banks after the ex-dividend date also defies convention.

In debt markets, where the timing of coupon payments and their effect on a bond's value is much more predictable, prices fall away by an amount close to a dividend as soon as the record date for the dividend entitlement passes. In contrast the Australian banks' shares have a tendency to maintain their value even after the share has gone ex-dividend.

Explaining the extent of the run up in bank shares purely on risk also does not add up. National Australia Bank, which is among the most volatile of the big four delivers the weakest run at fewer than 2.9% in the 25 days before the ex-dividend date. This compares with CBA, which is less volatile, which delivers a return of 3.3%. All banks are due to report from the end of this month through to June - watch for the rally

How to play a hand:

"Masters of the universe" - is an epithet for a central banker that has waned in currency as the financial crisis has unfolded. However, if the US Federal Reserve and its counterparts around the world prevail in their latest quest, it is one perhaps they can justifiably reclaim.

The Federal Reserve's top two officials last week went public with their handwringing over the enormity of the task they faced, declaring they would withdraw the trillions of dollars they have pumped into the US economy if inflation should begin to take hold.

Chairman Ben Bernanke said the Federal Reserve must retain the flexibility to withdraw its record cash injections to restrain prices and warned against interference with "the independent conduct of monetary policy."

Vice chairman Donald Kohn said "the trick will be unwinding this balance sheet in a timely way to avoid inflation." Their comments are in many ways pre-emptive. Dr Bernanke has always been clear that the near doubling in the size of the Federal Reserve's balance sheet since last year is aimed directly at restoring the credit markets to health.

Specifically, this has meant a reduction in the premium that commercial rates enjoy over between risk-free rates. Once this objective had been achieved the monetary stimulus would be removed. Instead of printing cash and buying government and private sector debt, the Federal Reserve would begin to start selling the huge pile of debt it had accumulated. Such moves would probably be followed by hikes in the Federal Reserve's target rate, which now stands at 0.25 per cent.

The effects of such moves will be the same as they have always been. Interest rates will increase, making it harder for firms to generate a profit (or more to the point) take on new staff. Consumers will find it harder to finance a car or a new house. Aggregate demand will fall.

And here is the rub - US politicians will find these moves hard to stomach especially with US unemployment now running at 8.5%, the highest it has been in 25 years. Any move is sure to unleash a storm of criticism even in the highly unlikely event of academic consensus support.

And even if these considerations are discounted, the actual practice of removing such liquidity from the system presents a massive challenge. For a start, the US $1 trillion in mortgage-backed securities, the Federal Reserve has acquired to help shore up bank balance sheets are not an easy sell.

Indeed, one of the reasons the Federal Reserve acquired these instruments in the first place was because no one else wanted to touch them.

The Federal Reserve was in effect the buyer of last resort. One of the measures contemplated to cope with this last point is the possibility of the Federal Reserve issuing its own debt in the form of a new instrument, "Fed bills."

Finally, the Federal Reserve, as a purveyor of US government securities, faces a pretty big rival - the US government. The financial turmoil is already weighing heavily on the US government balance sheet and it is already selling treasuries as fast as it can print them.

The twin pressures of new issuance and an unwinding of the Federal Reserve balance sheet could see a sharp spike in interest rates. It is perhaps no wonder that inflation is being imputed into share prices.

Dr Ben Bernanke is clearly going to earn his salary over the net couple of years.