Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
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U.S. Monetary Policy and Investor Reactions: Korean Evidence

미국의 통화정책과 국내 주식 투자자의 반응

  • Jongho Park (Department of Business Administration, Soongsil University)
  • Received : 2022.11.30
  • Accepted : 2022.12.23
  • Published : 2022.12.30
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Abstract

Purpose - The primary objective of this article is to investigate the impact of U.S. monetary policy on institutional / individual / foreign investor reactions in the Korean stock market. Design/methodology/approach - This study employs a high frequency event study methodology to identify U.S. monetary policy shocks and quantify the impact of identified shocks on investor reactions. The dependent variable in the regression model is net stock purchase, while the explanatory variables are U.S. monetary policy shocks. The model is estimated for the period 2000-2019, including 156 FOMC meetings. Findings - Foreign investors immediately sell stocks in response to contractionary U.S. monetary shocks. They do not, however, react to anticipated changes in monetary policy rates, confirming the rationality of foreign investors. Individual investors demonstrate the opposite response, indicating that a non-trivial proportion of individual investors are irrational. Research implications or Originality - This study adds to the current literature on the effect of U.S. monetary policy on the Korean stock market. This study demonstrates a heterogeneous response to U.S. monetary policy shocks, validating the rational investment behavior of foreign investors, while individual investors exhibit a certain degree of irrationality. Methodologically, this study adds to the literature by quantifying the impact of U.S. monetary policy employing a sharper identification method allowing a simple and consistent estimation.

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