Journal
JOURNAL OF INTERNATIONAL FINANCIAL MARKETS INSTITUTIONS & MONEY
Volume 24, Issue -, Pages 1-24Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.intfin.2012.11.004
Keywords
Fed funds futures market; Monetary policy; Stock returns; Time-varying parameter model
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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. (C) 2013 Elsevier B. V. All rights reserved.
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