Foreign shocks and the volatility of the ISEQ

We investigate the influence of foreign monetary policy decisions on the volatility
of the Irish stock market. Specifically, we examine the influence of US monetary policy announcements on the ISEQ. We find evidence of the so called calm before the storm i.e. there appears to be a decline in volatility on the day prior to an FOMC meeting and a subsequent increase in volatility after
the results of such meetings are made known. We also find evidence to suggest
that ISEQ volatility is influenced by surprise changes in US monetary policy.
Moreover, US monetary surprises appear to affect Irish stock return volatility
asymmetrically. In particular, higher than expected US federal funds, tend to increase Irish stock return volatility. This paper represents an important step
in addressing the issues of spillover identification between the US and the Irish
stock market.