Beyond the Dinar: Deciphering Monetary Policy Shocks in Kuwait’s Equity Market

Abstract

Purpose: This study investigates the impact of US and Kuwait monetary policy on the Kuwait Stock Exchange (KSE). Study design/methodology/approach: Our study employs an event study approach focused on Federal Open Market Committee (FOMC) announcement dates to analyze the impact of US and Kuwait monetary policy on the Kuwait Stock Exchange. By utilizing futures markets, we distinguish between the expected and unexpected components of these announcements.Sample and data: A time series dataset of KSE main indices between 2012 and 2024. Results: US monetary policy strongly impacts KSE, which is predominantly driven by the anticipated component of monetary policy change. KSE is responsive to the unanticipated component predominantly for information shock samples. KSE became more responsive to monetary policy after privatization in 2018. The Premier Market segment is more responsive to monetary policy impact than the Main Market segment. Monetary policy has a different effect and is not uniform among the various industries within KSE. Finally, Kuwait’s monetary policy does not have the same impact on KSE as US monetary policy. Originality/value: Our paper is the first to examine the impact of monetary policy on KSE by decomposing monetary policy changes into expected and unexpected components. We further decompose shocks into monetary or information shocks. We contribute to understanding the interactions between monetary policy and equity markets in emerging economies. Research limitations/implications: The study’s findings show that KSE efficiently processes public information and is responsive to US fed rate changes rather than local discount rate changes.