Saudi Cultural Missions Theses & Dissertations

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Gulf Cooperation Council Countries’ Stock Market Response to US Federal Reserve Policy Actions
(Saudi Digital Library., 2022-04-25) Al Rowaily, Muathe; Bogan, Vicky; Leyden, Benjamin
This study examines the effects of changes in the United States’ (US) monetary policy actions on the Gulf Cooperation Council (GCC) countries’ stock markets. Efficient financial markets are unlikely to respond to anticipated policy actions. Therefore, Federal funds futures data are used to categorize the changes in monetary policy actions into anticipated and unanticipated components. The results indicate that equity returns across the GCC are roughly 19 percentage points more volatile on monetary policy event days than non-event days. We find that a surprise change in the Federal funds rate is positive on equity prices and statistically significant across all GCC countries except for Bahrain, where it is negative and statistically significant. On average, a hypothetical unanticipated 25-basis-point hike in the Federal funds rate target is associated with a 1.5% increase in the GCC broad stock indexes. These findings are relevant to both the direction and context of Federal funds rate surprises.
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