The Impact of Domestic and International Monetary Policy News on U.S. and German Bank Stocks

International Finance Review, 14, 177-212, 2013

41 Pages Posted: 4 Oct 2013

See all articles by Suk-Joong Kim

Suk-Joong Kim

The University of Sydney Business School

Linda Lee

UNSW Australia Business School, School of Banking and Finance

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Date Written: October 3, 2013

Abstract

This paper investigates the impact of policy interest rate news from the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) on stock returns and volatilities of U.S. NYSE and German DAX listed commercial banks. We find that Fed news has the most influence on both U.S. and German listed bank stocks and an unexpected policy rate increase (decrease) lowers (raises) returns and raises volatility in the majority of cases. On the other hand, ECB news generally increases bank stock volatility in the U.S. but has little impact within its own domestic banking industry. Whilst our results for the U.S. listed banks confirm that their stock prices are more responsive in bad economic times and also during periods of monetary tightening, we find disparities for German banks suggesting that U.S. and European banking industries respond heterogeneously to monetary policy news but the Global Financial Crisis increased the sensitivity of all banks to monetary policy news.

Keywords: Federal Reserve, European Central Bank, banking, news spillovers, volatility

JEL Classification: E43, E44, G21

Suggested Citation

Kim, Suk-Joong and Lee, Linda and Wu, Eliza, The Impact of Domestic and International Monetary Policy News on U.S. and German Bank Stocks (October 3, 2013). International Finance Review, 14, 177-212, 2013, Available at SSRN: https://ssrn.com/abstract=2335399

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)

Linda Lee

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Eliza Wu

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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