 US monetary policy surprises transmission to European stock marketsTarek Chebbi and Abdelkader Derbali International Journal of Monetary Economics and Finance, 2019, vol. 12, issue 1, 3-14 Abstract: This paper empirically investigates the impact of US monetary policy surprises on the volatility of stock market returns for euro area countries. More specifically, to extract the unanticipated component of the US monetary policy, we follow the Kuttner's methodology and we use the federal funds futures. Using the approach of dynamic conditional correlation (DCC) as introduced by Engle (2002) over the period from 1 January, 2004 through 31 December, 2008, we find that US monetary policy surprises exert a strong influence on market volatility. This confirms the efficient markets hypothesis demonstrating that equity prices should only react to new information. We also find a significant response of volatility to an expected component of target rate change. We highlight homogeneity in the responsiveness of European stock markets to US news announcements. It is important to note that the persistence of volatility is clear across all regressions and it is shown by the strong significance of associated coefficients. Keywords: monetary policy surprises; conditional volatility; federal funds futures; European stock markets; DDC-GARCH. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:ijmefi:v:12:y:2019:i:1:p:3-14 Access Statistics for this article More articles in International Journal of Monetary Economics and Finance from Inderscience Enterprises Ltd |
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