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
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: Suggested Citation
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