Impact of US monetary policy announcement on investor behavior: empirical evidence from Vietnam

Abstract

US monetary policy not only affects the US financial markets but also affects the global economy (Beckworth & Crowe 2017). This paper examines the effects of US monetary policy on the Vietnam stock market. The dataset includes 87 events of Federal Open Market Committee (FOMC) announcements for the period 2007 - 2018. The authors use an event study approach to examine changes in stock index and trading behavior of investors including foreign investors. The result suggests a negative excess return pre FOMC announcement of a reduction in policy interest rates. In addition, the result indicates a statistically significant abnormal stock sale from investors including foreign investors around the event date of FOMC announcing a raise in interest rates. Moreover, we find that the impact of US monetary policy on the Vietnam stock market is only in short-term.