The impact of domestic and international monetary policy news on U.S. and German Bank stocks

Abstract

This chapter 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 United States but has little impact within its own domestic banking industry. While 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.

Citation

Kim, S.-J., Lee, L. and Wu, E. (2013), "The impact of domestic and international monetary policy news on U.S. and German Bank stocks", Global Banking, Financial Markets and Crises (International Finance Review, Vol. 14), Emerald Group Publishing Limited, Leeds, pp. 175-210. https://doi.org/10.1108/S1569-3767(2013)0000014010