The Sensitivity of Non-U.S. Bank Stock Returns to Changes of U.S. Monetary Policy

Haiyan Yin and Jiawen Yang

Journal of Applied Finance & Banking, 2013, vol. 3, issue 6, 2

Abstract: This paper investigates the international spillover effect of U.S. monetary policy changes on non-U.S. bank stock returns. Our dataset covers 442 non-U.S. banks in 57 countries for 1994-2007. We find that there exists an inverse relationship between non-U.S. bank stock returns and unexpected changes in the U.S. federal funds rate target. Our study provides strong evidence that the sensitivity of non-U.S. bank stock returns varies with regard to the nature and context of monetary policy changes, bank-level characteristics, and country-level institutional factors. Our findings have important implications on international financial stability, trading and hedging strategies, and banking management and regulation.

Date: 2013
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