Abstract
The stronger the level of economic integration between countries, the greater the need to study the formation patterns of the stock market reaction to the financial information signals. This concerns the Ukrainian stock market, which is now in its infancy, and which reaction to financial information signals is sometimes ambiguous. The research aims to identify the formation patterns of return and volatility indicators of the Ukrainian stock market reaction to the US financial information signals. To assess the direct nature of US financial information signals effect on the PFTS stock index, the GARCH econometric modeling toolkit was applied. The research information base is the PFTS stock index and the Federal Reserve System financial information signals at the discount rate for 2000–2019. The fetch is divided into intervals corresponded to the ascent and decline phases of the financial cycle. It was found that an unforeseen increase in the discount rate at the financial cycle decline phase by 25 basis points decreases the PFTS stock index return, on average by 2.9%. Besides, the hypothesis about the general change stabilizing effect in the discount rate on the Ukrainian stock market volatility at the financial cycle growth phase was confirmed. Nevertheless, for investors, the most essential is the regulator’s monetary signals in the discount rate at the financial cycle decline phases rather than at the ascent phases because there is a more significant increase in the volatility level.
Highlights
Among the stock market’s essential functioning aspects, one can single out the specific features of its reaction to financial information signals negatively affecting the stock indices dynamics
Quotes during 2000–2019 taken from the Datastream database and used to compute the exchange rate of the PFTS stock index return in the trading day format: tary information signal on the return of Ukrainian stock market; ∆it is the time series of financial time series, which values correspond to changes in the discount rate by the Federal Reserve System on the day the monetary information signal is announced or equal to zero on days when there is no announcement of the corresponding monetary information signals; εt is an error, which conditional variance is heteroscedastic and follows the GARCH ( ρ, q) process of the form: q p
The neutral nature of the expected component effect of the Federal Reserve System’s monetary information signals on the discount rate on Ukrainian stock market return at the financial cycle ascent phase can be partially explained by the fact that the forecast regarding the change in the discount rate is already reflected in the current price and, according to Fama (1965), should influence quotes
Summary
Among the stock market’s essential functioning aspects, one can single out the specific features of its reaction to financial information signals negatively affecting the stock indices dynamics. 2. HYPOTHESES DEVELOPMENT can be discarded in favor of hypothesis (positive effect of the expected component at the ascent phase) or hypothesis (negative effect of the expected component at the ascent phase); This study performs tests to identify the effect features of the Federal Reserve System’s monetary decisions on the discount rate on the Ukrainian stock market return and volatility with and without highlighting the cyclical fluctuations phases. (neutral effect of the expected component at the decline phase) can be discarded in favor of hypothesis (positive influence of the expected component at the decline phase) or hypothesis (negative effect of the expected component at discount rate’s overall change on the part of the the decline phase); Federal Reserve System increases (decreases) the PFTS stock index return and volatility It is required to find out whether:. Carded in favor of hypothesis (destabilizing effect at the decline phase of financial cycle) or hypothesis (stabilizing effect at the decline phase)
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