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
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: Suggested Citation