The Impact of Fed Funds Rate Target Changes on the Asian Stock Market - Empirical Evidence

This study examines the effect of Fed funds rate target changes on Asian stock markets Japan, Hong Kong, Thailand, South Korea, Malaysia, and Singapore. The response of these markets to the Fed target rate changes vary in degree. Four out of six of the markets exhibit higher returns following target rate decreases. However, target rate increases do not cause all markets to react negatively. Only one market reacts significantly to rate increases. The Fed actions also convey clear signals to the Asian markets. In particular, only two countries experience higher returns volatility around the three-day window when rates increases. When US stock market returns are used as an additional explanatory variable for the returns of the six Asian stock markets, Fed target rate changes remain dominant. The evidence indicates that Fed signals convey information beyond that contained in US stock market changes. _____________________________