Macroeconomic Surprises and International Financial Market Returns
Kyung-Chun Mun

Abstract
This paper investigates the simultaneous effect of macroeconomic developments on stock and foreign exchange (FX) market returns in a system that is characterized by dynamic interaction among asset returns. Using US and UK data, we find that US stock market returns are significantly responsive to domestic macroeconomic developments in output growth, interest rates, and unemployment rate. US stock market returns are also responsive to UK surprises in money growth and inflation and the surprises in FX markets such as the ones in interest rates and trade balance. We also find that the dollar/pound exchange rate is asymmetrically responsive to the money growth surprise in US and UK and in the FX market as well.

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