The reaction of international stock markets to Federal Reserve policy

This paper investigates how changes in Federal Reserve policy impact international stock returns, with the three objectives of measuring the reaction of international stock markets, understanding the transmission channels of that reaction, and explaining the economic sources of that reaction. We fin...

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Bibliographic Details
Main Authors: Wang, Jing, Zhu, Xiaoneng
Other Authors: Nanyang Business School
Format: Article
Language:English
Published: 2013
Subjects:
Online Access:https://hdl.handle.net/10356/98698
http://hdl.handle.net/10220/17410
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Institution: Nanyang Technological University
Language: English
Description
Summary:This paper investigates how changes in Federal Reserve policy impact international stock returns, with the three objectives of measuring the reaction of international stock markets, understanding the transmission channels of that reaction, and explaining the economic sources of that reaction. We find that unanticipated Federal Reserve policy actions exert a significant and robust influence on international stock prices. However, the influence of unanticipated monetary policy actions is not strong enough to change the correlation structure of international equity returns. We also find that international stock return co-movements play an important role in the transmission of monetary policy. Finally, the variance decomposition analysis indicates that the effects of monetary policy surprises on future excess returns or dividend returns account for the largest portion of the equity price response.