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, 2013, vol. 24, issue C, 1-24

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.

Keywords: Fed funds futures market; Monetary policy; Stock returns; Time-varying parameter model (search for similar items in EconPapers)
JEL-codes: C32 E5 G14 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:24:y:2013:i:c:p:1-24

DOI: 10.1016/j.intfin.2012.11.004

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