This article studied the impact of the ECB and FOMC monetary policy announcements on the returns of Asian indices. Founded in 1999, ECB, European Central Bank, is the central bank and manages the monetary policy of the European Union, which consists of 18 countries of the European Union. During its second meeting, the Governing Council mainly takes decisions related to the ECB's other tasks.
Event days of FOMC announcements in this paper refer to the Minutes of the Federal Open Market Committee, which are regularly released around 2:15 PM EST, eight times a year5. The decisions taken and announced by the ECB or the FOMC create a chain of events that affect other short-term interest rates, foreign exchange rates, long-term interest rates, creditworthiness and a number of economic variables6; therefore, the announcements may result in significant changes in market expectations for the path of monetary policy. This paper studied the impact of monetary policy announcements by the ECB and FOMC on most Asian capital markets consisting of 17 indices partly from East Asia, South Asia, Southeast Asia and others.
The pre-FOMC event shows that there is a large average excess return on the US. The results report that the ECB's communication during the press conference can result in significant changes in market expectations about the course of monetary policy. Finally, this paper uses intraday changes in money market interest rates to construct indicators of monetary policy news arising from the ECB's policy decisions and official communications, and to study their impact on the yield curve.
Constant Consists of changes in the news that were extracted using the methods described earlier.
DATA AND METHODOLOGY
Data
Methodology
Where Ri is the dependent variable, mean returns to FOMC and ECB announcements at 0 event days for each Asian index, the coefficient β1 is the average return on (pre-ECB)i when the constant α is omitted. The pre-ECB dummy is a variable that is equal to 1 if it is the ECB announcement, and zero if it is wise (the FOMC announcement). Finally, the constant α measures the average unconditional return earned over the entire time period outside the pre-ECB4 window.
For further analysis, I grouped the results into 4 regions, which are East Asia5, South Asia6, Southeast Asia7 and Other8. In addition, I sort the results by market classification9, which are developed market, emerging market, and frontier market, and sort by market capitalization size10. 5East Asia consists of Hong Kong HIS, South Korea KOSPI, Japan NKY, China China SHCOMP and Taiwan TWSE.
7Southeast Asia consists of Indonesia JCI, Malaysia KLCI, Philippines PCOMP, Thailand SET, Singapore STI and Vietnam VNINDEX. 9Market classification is according to MSCI's official website at http://www.msci.com/products/indexes/market_classification.html.
EMPIRICAL RESULTS
- The Daily Mean Return on FOMC and ECB Announcements
- The Daily Mean Return on FOMC and ECB Announcements for period of the year 2010 to 2013 (Euro crisis, and QE issue)
- The Daily Mean Return on FOMC and ECB Announcements Classify by Regions
- The Daily Mean Return on FOMC and ECB Announcements Classify by Market Capital, and Market Classification
- Simple Dummy-Regression of the Daily Mean Return on FOMC and ECB
This table reports summary statistics on daily average return of Asian indices from impact of FOMC and ECB monetary policy announcement. As seen in the tables, panel A displays significant average returns on impact of FOMC and ECB announcements on -1 day in Pakistan's KSE100, China's SHCOMP, and Vietnam's VNINDEX indices; in addition, the table displays significant average returns on 0 day in Bangladesh's DHAKA, Indonesia's JCI, and Philippines' PCOMP indices, finally, the table displays significant average returns on +1 day in Sri LanKa's CSEALL, Bangladesh's DHAKA, Malaysia's KLCI, and Philippines' PCOMPincici. There is no significant evidence of average return on -1 day, but the table shows significant average returns on 0 day in Bangladesh's DHAKA, Indonesia's JCI and Pakistan's KSE100 indices, and the table shows significant average returns on +1 day in Sri LanKa's CSEALL, and Pakistan's KSE100 indices.
The table shows significant average returns due to the -1-day impact of ECB announcements on Pakistan's KSE100, China's SHCOMP, Singapore's STI and Vietnam's VNINDEX. And the table shows the significant mean returns on day 0 in DHAKA indices of Bangladesh, PCOMP in the Philippines and VNINDEX indices in Vietnam, finally the table shows the significant mean returns on day +1 in CSEALL in Sri Lanka, CSEALL in Sri Lanka, CSEALL in Sri Lanka, Pakistan KSE100 , the Philippine PCOMP index and the Thai SET. As can be seen in the tables, panel A shows the significant average returns on the impact of FOMC announcements on -1 day only in Sri Lanka's CSEALL index, while the table shows the significant average returns on day 0 in the New Zealand NZSE50FG index only, finally the table shows the significant average returns on + 1 day in Singapore STI and Taiwan TWSE indices.
On the other hand, panel B shows significant mean returns on impact of ECB announcements only on -1 day in Pakistan's KSE100, and China's SHCOMP indices, while the table shows significant mean returns on 0 day in only Bangladesh's DHAKA, and there are no significant returns on day 0. average returns on impact of ECB announcements on +1 day. As seen in the tables, panel A exhibits significant mean returns on impact of FOMC announcements only on -1 day in Sri Lanka's CSEALL index only, while there is no significant evidence to support the impact on 0 day, and the table shows significant average returns on +1 day in Sri Lanka's CSEALL, Philippines' PCOMP, and India's SENSEX indices. On the other hand, panel B shows no significant average returns on impact of ECB announcements on -1 day, while the table finally shows significant average returns on 0 day in New Zealand's NZSE50FG, and Philippines' PCOMP indices the table significant average returns on +1 day in Bangladesh's DHAKA, and Vietnam's VNINDEX indices.
Finally, as shown in Table 4.3 from all panels, there is significant support that the impact of FOMC and ECB announcements over the period 2010 to 2013 has the same effect on Asian stock indices. Finally, as the table shows, there is significant evidence to support that South Asia and Southeast Asia indices respond more than the other two regions to the impact of FOMC and ECB announcements. This table shows the results for a pre-ECB dummy variable regression based on the daily average return of each Asian index calculated over positive average returns and negative average returns.
Furthermore, for each Asian index, I observe the average returns on the FOMC and ECB announcements on the day of the 0 events. This table shows the results for the ECB dummy variable regression (before) based on the daily average return on each Asian index, calculated from positive average returns and negative average returns. The dependent variable is the average return on the FOMC and ECB announcements on day 0 for each Asian index.
In addition, for positive daily average returns, there is significant evidence supporting that ECB influences more than FOMC with 0.28% for India's SENSEX, and 0.30% for Thailand's SET. On the other hand, in negative daily average returns there is significant evidence supporting that ECB influences more than FOMC with 0.45% for China's SHCOMP, 0.42% for Bangladesh's DHAKA, and 0.55% for Pakistan's KSE100.
POTENTIAL EXPLANATIONS
Impact of ECB and FOMC announcements
Market capital and Market classification
