Stock market vulnerability to US monetary policy: Evidenced from quantile coherency analysis

Turkey, Brazil, India, South Africa, and Indonesia are referred as the fragile five countries in 2013. Since then, however, the macro-economic environment of those countries has improved a lot. The objective of the study is to investigate whether the stock market of those countries is still vulnerable to US monetary policy using a novel quantile coherency methodology. The vulnerability is based on the general dependency structure at the quantile of joint distribution across frequencies. Besides, the pre and post 2013 dependency is compared to examine the effectiveness of macro-economic factors in controlling the impacts of the US monetary policy. Positive and negative dependencies were observed during conventional and unconventional quantitative easing and tightening respectively. Largely, it persists in the long-to-medium term across the state of the market. Domestic macroeconomic fundamentals seem to be relatively less effective in controlling the impact of US monetary policy. Thus, additional institutional reforms are required to make these markets resilient to global monetary policy shocks.