Advances in Economics, Management and Political Sciences

- The Open Access Proceedings Series for Conferences


Proceedings of the 7th International Conference on Economic Management and Green Development

Series Vol. 43 , 10 November 2023


Open Access | Article

The Effect of Rise of Federal Funds Rate on US Stock Market: From the Perspective of US Dollar Appreciation

Angela Ruo-yan Zhao * 1
1 University of California San Diego

* Author to whom correspondence should be addressed.

Advances in Economics, Management and Political Sciences, Vol. 43, 89-96
Published 10 November 2023. © 2023 The Author(s). Published by EWA Publishing
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Citation Angela Ruo-yan Zhao. The Effect of Rise of Federal Funds Rate on US Stock Market: From the Perspective of US Dollar Appreciation. AEMPS (2023) Vol. 43: 89-96. DOI: 10.54254/2754-1169/43/20232134.

Abstract

The study examines the impact of the rise of the Federal Funds Rate (FFR) on the stock price returns and volatility of the United States of America. The study extracted the stock price from January 3, 2022, to June 16, 2023, from the Investing finance terminal, including the Standard and Poor’s (S&P 500), US Dollar Index, and the National Association of Securities Dealers Automated Quotations (NASDAQ) Index. This study uses the Vector Autoregression (VAR) model and the ARMA-GARCH model to evaluate the stock returns and daily return volatility, respectively. The two models inspect the effect of the US Dollar index on both the NASDAQ and S&P 500. The result of this study suggests that the rise in the Federal Funds Rate would cause the stock market price to decline for a relatively long period. However, the volatility of the daily return remains stable. By studying the effect of the rise in the Federal Funds Rate, policymakers can change the stock prices by adjusting the Federal Funds Rate based on the market’s needs.

Keywords

stock return, volatility, US dollar index, federal funds rate

References

1. S. Javed, B.A. Aldalaien, U. Husain, M.S. Khan, (2019) Impact of Federal Funds Rate on Monthly Stocks Return of United States of America. International Journal of Business and Management; Vol. 14, No.9.

2. J. Lee, C. Yue, (2017) Impacts of the US dollar (USD) exchange rate on economic growth and the environment in the United States. Energy Economics, Elsevier, Vol. 64: pp 170-176.

3. J.L. Prakken, C.P. Varvares. (2015) The Impact of a Rising Dollar on the U.S. Economy. Business Economics, Vol. 50, No.1,: pp. 25-33.

4. C. Ioannidis, A. Kontonikas. (2008) The impact of monetary policy on stock prices. Journal of Policy Modeling, Vol. 20, Issue 1: pp. 33-53.

5. Y.D. Li, T.B. İşcan, K. Xu. (2010) The impact of monetary policy shocks on stock prices: Evidence from Canada and the United States. Journal of International Money and Finance, Vol. 29, Issue 5: pp. 876-896.

6. G. Jordi, L. Gambetti. (2015) The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence. American Economic Journal: Macroeconomics, Vol. 7: pp. 233-257

7. N. Balakrishnan. (2010) Methods and Applications of Statistics in Business, Finance, and Management Science. John Wiley & Sons.

8. C.A. Sims. (1980) Macroeconomics and Reality. Econometrica, Vol. 48, No. 1: pp. 1–48.

9. N. Naik, B.R. Mohan, R.A. Jha. (2010). GARCH-Model Identification based on Performance of Information Criteria. Procedia Computer Science, Vol 171: pp. 1935–1942.

10. R. Shailesh, D. Jeffry, N. Natesan. (2018). Volatility Estimation using GARCH Family of Models: Comparison with Option Pricing. Pacific Business Review International. Vol. 10: pp. 54-60.

Data Availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. Authors who publish this series agree to the following terms:

1. Authors retain copyright and grant the series right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this series.

2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the series's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this series.

3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See Open Access Instruction).

Volume Title
Proceedings of the 7th International Conference on Economic Management and Green Development
ISBN (Print)
978-1-83558-107-0
ISBN (Online)
978-1-83558-108-7
Published Date
10 November 2023
Series
Advances in Economics, Management and Political Sciences
ISSN (Print)
2754-1169
ISSN (Online)
2754-1177
DOI
10.54254/2754-1169/43/20232134
Copyright
© 2023 The Author(s)
Open Access
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited

Copyright © 2023 EWA Publishing. Unless Otherwise Stated