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Monetary Policy and the Stock Market: Intraday Transaction Data Analysis (in Korean)

Author

Listed:
  • Wook Sohn

    (KDI (Korea Development Institute))

  • Yunsung Eom

    (Seoul National University)

Abstract

This paper analyzes intraday transactions in the Korean stock market to investigate the impact of policy signals - statements of the authorities about the future direction of monetary policy - on returns, volatility and trading volume(trading value) in the stock market. The stock market responds not only to change of the overnight call target rate but also to pronouncements indicating the future monetary policy stance. The impact is largest just before and just after policy signals, which suggests that the stock market moves efficiently to incorporate its expectations of monetary policy in pricing and transaction behavior. Stock market volatility increases around the time of monetary policy announcements, yet regular announcements act as a factor making for reduced volatility. This result implies that stock market volatility can be reduced by making regular announcements. Foreign investors show different patterns in their trading response to monetary policy announcements to those of individual and domestic institutional investors. Finally, in relation to the impact of the characteristics of individual issues on the stock market, the riskier and the smaller a company is, the greater the degree of volatility of its stock price.

Suggested Citation

  • Wook Sohn & Yunsung Eom, 2006. "Monetary Policy and the Stock Market: Intraday Transaction Data Analysis (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 12(3), pages 38-78, September.
    • Handle: RePEc:bok:journl:v:12:y:2006:i:3:p:38-78
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    More about this item

    Keywords

    Monetary policy signalling; The stock market's response; Market efficiency; Intraday transaction data analysis;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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