The Reaction of the Australian Financial Markets to the Interest Rate News from the Reserve Bank of Australia and the US Fed

Research in International Business and Finance, Vol. 22, No. 3, pp. 378-395

34 Pages Posted: 25 Feb 2008 Last revised: 11 Dec 2008

See all articles by Suk-Joong Kim

Suk-Joong Kim

The University of Sydney Business School

Tho Nguyen

Australian School of Business; Groupe ESC Rouen

Abstract

This paper provides comprehensive evidence on the impacts of the Reserve Bank of Australia's (RBA) and the U.S. Fed's target interest rate announcement news on the Australian financial markets over the period 1998-2006. The RBA's news had a significant impact on the first moments of market returns/changes in line with a priori expectations, and the conditional volatility in most of the markets was significantly higher following the news. Asymmetric news effect is also observed for the Australian interest rates where markets tended to respond more strongly to unexpected rate rises than rate falls. While the U.S. Fed's news influenced only the USD/AUD exchange rate, the Australian market volatility was significantly lower in all market segments following the Fed's news.

Keywords: Monetary surprises, Target interest rate news, Spillover effects, RBA, U.S. Fed.

JEL Classification: E44, G14, G15

Suggested Citation

Kim, Suk-Joong and Nguyen, Tho, The Reaction of the Australian Financial Markets to the Interest Rate News from the Reserve Bank of Australia and the US Fed. Research in International Business and Finance, Vol. 22, No. 3, pp. 378-395, Available at SSRN: https://ssrn.com/abstract=1096359

Suk-Joong Kim (Contact Author)

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
+61 2 9114 0940 (Phone)
+61 2 9351 6461 (Fax)

Tho Nguyen

Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Groupe ESC Rouen ( email )

France

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