A recently published paper by the International Monetary Fund (IMF) found that U.S. monetary policy shocks drive global stock market prices. (click here for paper)

The International Business Times sums up the study,

When the Fed tightens (loosens) monetary policy, global equities tend to decline (rally), according to the study, which estimated that the unexpected component of U.S. interest movements has a negative coefficient of 0.04 with global stock prices.

For example, a 25-basis point increase of U.S. interest rates would reduce global stock prices by  1 percent. Interestingly, the impact of a 25-basis point rate hike on U.S. stock performance is similar.

The study also discovered that companies that depend on external financing and countries that are more “integrated with the global financial market” are more affected by U.S. monetary policy. The influence is also more pronounced during economic recessions.

“These findings suggest that financial frictions play an important role in the transmission of monetary policy, and that U.S. monetary policy influences global capital allocation,” said Laeven and Tong.

Interesting, but not surprising.