Published Online:January 2025
Product Name:The IUP Journal of Accounting Research & Audit Practices
Product Type:Article
Product Code:IJARAP070125
DOI:10.71329/IUPJARAP/2025.24.1.112-134
Author Name:Suraj Velip and Mrunali Jambotkar
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:112-134
The proclamation of monetary action has a mirroring effect on financial market. In view of this, the study attempts to shed light on the volatility traverse between stock markets corresponding to monetary policy announcements by the United States Federal Reserve (Fed). The top 10 economies’ market returns are analyzed around 19 unprecedented Fed interest rate policy announcements made over the period from December 17, 2015 to February 28, 2023. The study employs generalized autoregressive conditional heteroskedasticity-Baba Engle Kraft and Kroner (GARCH-BEKK) model for analysis. The evidence suggests a shock spillover in the stock markets in the short run when Fed announces its interest rate decision; but there is not much evidence for volatility persistence in the long run. Thus, the results indicate that market participants understand the degree to which stock market returns anticipate future Fed interest rate policy announcements and their shock and volatility impact.
As part of the monetary policy decisions of the United States Federal Reserve (Fed), the Federal Open Market Committee (FOMC) periodically announces an interest rate hike or cut depending on the prevailing state of the economy. FOMC resorts to an adjustment (elevate) of the fund rate when the economy starts overheating, while decreasing the rate when the economy slows down.