Transmission of central bank communication to emerging economies: Evidence from the Korean stock market |
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| Affiliation: | 1. Department of Management Engineering, Ulsan National Institute of Science and Technology, Ulsan 44919, Republic of Korea;2. School of Business Administration, Ulsan National Institute of Science and Technology, Ulsan 44919, Republic of Korea;1. Chulalongkorn Business School, Chulalongkorn University, Phayathai Road, Pathumwan, Bangkok 10330, Thailand;2. University of California San Diego and Puey Ungphakorn Institute for Economic Research (PIER), Bank of Thailand, Thailand;1. Bank of Russia, Research and Forecasting Department, Russia;1. Université Paris Est Créteil (UPEC), ERUDITE, France;2. CNRS, Université Paris Dauphine-PSL, CEPR, France;3. Université de Limoges, LAPE, Limoges, France;1. Business School, Hunan University, Changsha 410082, China;2. Center for Finance and Investment Management, Hunan University, Changsha 410082, China;1. School of Management, Xi''an Jiaotong University, Xi''an, China;2. Fanhai International School of Finance, Fudan University, Shanghai, China;3. Lubin School of Business, Pace University, New York, USA |
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| Abstract: | This study analyzes the impact of US central bank communication on financial markets in emerging economies. We find that informal communication from the Fed positively influences the Korean stock market at a greater magnitude than the US stock market. The results show that the Korean stock market experienced higher excess return when Korea's monetary policy decisions are uncertain, suggesting that central bank communication in central countries could transmit to emerging economics through their monetary policy decisions and uncertainty. In addition, various portfolios and individual equities have a positive market risk-return tradeoff in the presence of Fed communication only. |
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