Volume 29 Number 3, 2024

Influences of the Fed’s Monetary Normalization Policy on Emerging Stock Markets

Chien-Hsiu Lin ^a, Chih-Lin Tseng ^b, Tao Liu ^c
Department of Money and Banking, National Chengchi University, Taiwan
^a clin@mail2.nccu.tw
^b 106352024@nccu.edu.tw
^c mrdavidliu0716@gmail.com
 

ABSTRACT

This paper investigates the impact of the Fed’s monetary normalization policy on emerging stock market performances. Our findings demonstrate emerging markets were significantly negatively affected shortly after the U.S. rate hikes, market panic increases, and commodity price decreases. We also find the declines in stock market returns were larger for emerging countries with low financial openness, high country-specific risks and long-term trade deficits than for other countries when the Fed raised rates. In terms of geographical locations, Asian stock markets demonstrated their growth momentum over a long period, while Latin American economies, dependent heavily on commodity trades, underwent stagnation and recession during the QE tapering. On the other hand, our results show that the increase in U.S. real output had negative spillovers to emerging stock market performance, potentially due to more funds from these countries flowing into the U.S. market.

JEL Classification: E52, F42

Keywords:  QE tapering, emerging stock markets, financial openness, country-specific risk, trade deficit

Cite this article: 

Lin, C.-H., Tseng, C.-L., Liu, T., 2024, Influences of the Fed’s Monetary Normalization Policy on Emerging Stock Markets, International Journal of Business, 29(3), 006. https://doi.org/10.55802/IJB.029(3).006