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The time-varying response of foreign stock markets to U.S. monetary policy surprises: Evidence from the Federal funds futures market

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  • Kishor, N. Kundan
  • Marfatia, Hardik A.

Abstract

In this paper, we estimate the time-varying response of foreign stock markets to U.S. monetary policy shocks derived from the high-frequency Federal funds futures market. Our results show significant time-variation in the response of the global equity markets to U.S. monetary policy surprises, where an unanticipated interest rate cut leads to an increase in stock returns. Our findings suggest that the foreign stock markets respond more to U.S. monetary policy surprises during the crisis periods. We also find that the stock markets in Europe and the U.S. responded negatively to unanticipated interest rate cuts by the Fed during the recent financial crisis.

Suggested Citation

  • Kishor, N. Kundan & Marfatia, Hardik A., 2013. "The time-varying response of foreign stock markets to U.S. monetary policy surprises: Evidence from the Federal funds futures market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 1-24.
  • Handle: RePEc:eee:intfin:v:24:y:2013:i:c:p:1-24
    DOI: 10.1016/j.intfin.2012.11.004
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    Cited by:

    1. Wendy Nyakabawo & Rangan Gupta & Hardik A. Marfatia, 2018. "High-Frequency Impact of Monetary Policy and Macroeconomic Surprises on US MSAs and Aggregate US Housing Returns and Volatility: A GJR-GARCH Approach," Working Papers 201817, University of Pretoria, Department of Economics.
    2. Brana, Sophie & Prat, Stéphanie, 2016. "The effects of global excess liquidity on emerging stock market returns: Evidence from a panel threshold model," Economic Modelling, Elsevier, vol. 52(PA), pages 26-34.
    3. Marfatia, Hardik A. & Gupta, Rangan & Cakan, Esin, 2017. "The international REIT’s time-varying response to the U.S. monetary policy and macroeconomic surprises," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 640-653.
    4. repec:vls:finstu:v:21:y:2017:i:3:p:6-18 is not listed on IDEAS
    5. Rangan Gupta & Chi Keng Marco Lau & Ruipeng Liu & Hardik A. Marfatia, 2017. "Price Jumps in Developed Stock Markets: The Role of Monetary Policy Committee Meetings," Working Papers 201727, University of Pretoria, Department of Economics.
    6. repec:eee:riibaf:v:44:y:2018:i:c:p:256-272 is not listed on IDEAS
    7. Stylianos X. Koufadakis, 2015. "Asymmetries on Closed End Country Funds Premium and Monetary Policy Announcements: An Approach Trough the Perspective of Foreign Countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 65(3-4), pages 29-65, july-Dece.
    8. Walid Bahloul & Rangan Gupta, 2017. "The Impact of Macroeconomic News Surprises and Uncertainty of Major Economies on Returns and Volatility of Oil Futures," Working Papers 201715, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    Fed funds futures market; Monetary policy; Stock returns; Time-varying parameter model;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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