Federal Reserve Communications and Emerging Equity Markets

MAGKS Discussion Paper No. 23-2009

23 Pages Posted: 12 May 2009 Last revised: 5 Dec 2010

See all articles by Bernd Hayo

Bernd Hayo

University of Marburg - School of Business & Economics

Ali M. Kutan

Southern Illinois University at Edwardsville

Matthias Neuenkirch

University of Trier - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 2, 2010

Abstract

Work on the impact of U.S. monetary policy on emerging financial markets mostly focuses on official federal funds rate announcements; empirical evidence using data on informal communication channels, such as speeches, is scant. Employing a unique data set covering formal and informal communication channels in a GARCH model framework, we provide comprehensive evidence on the effects of U.S. monetary policy on 17 emerging equity market returns over the period 1998–2009. We find, first, that both monetary policy actions and communications have a significant impact on market returns. Second, target rate change surprises are an important driver of emerging market returns. However, informal communications - particularly when taking into account their higher frequency - have a larger (cumulative) influence on returns than do target rate surprises. Third, during the financial crisis, central bank communication plays an even more pronounced role. Finally, American emerging markets react more to U.S. central bank communications than do non-American markets. We discuss the policy implications of the findings.

Keywords: E52, G14, G15

JEL Classification: Central Bank Communication, Emerging Markets, Federal Reserve, Financial Crisis, Monetary Policy

Suggested Citation

Hayo, Bernd and Kutan, Ali M. and Neuenkirch, Matthias, Federal Reserve Communications and Emerging Equity Markets (December 2, 2010). MAGKS Discussion Paper No. 23-2009. Available at SSRN: https://ssrn.com/abstract=1402584 or http://dx.doi.org/10.2139/ssrn.1402584

Bernd Hayo

University of Marburg - School of Business & Economics ( email )

Universitaetsstr. 24
Marburg, D-35032
Germany
++49(0)6421-28-23091 (Phone)
++49(0)6421-28-23193 (Fax)

Ali M. Kutan

Southern Illinois University at Edwardsville ( email )

Department of Economics and Finance AH-3141
Edwardsville, IL 62026-1102
United States
618-650-3473 (Phone)
618-650-3047 (Fax)

HOME PAGE: http://https://ideas.repec.org/e/pku30.html

Matthias Neuenkirch (Contact Author)

University of Trier - Faculty of Economics ( email )

Universitätsring 15
Trier, 54296
Germany
+49 - (0)651 - 201 - 2629 (Phone)

HOME PAGE: http://www.uni-trier.de/index.php?id=50130

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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