The Spillover Effects of Target Interest Rate News from the U.S. Fed and the European Central Bank on the Asia-Pacific Stock Markets

Abstract

This paper examines the spillover effects of the U.S. Fed’s and the European Central Bank (ECB)’s target interest rate news on the market returns and return volatilities of twelve stock markets in the Asia-Pacific region over the period 1999-2006. The news spillover effects on the returns are generally consistent with the literature where a majority of stock markets shows significant negative returns in response to unexpected rate rises. Whilst the results of the speed of adjustment for the Fed’s news are mixed, the ECB news was absorbed slowly, in general. The return volatilities were higher in response to the interest rate news from the both sources. In addition, both the Fed and the ECB news elicited delayed or persisting volatility responses.