Stock market reaction to US interest rate hike: evidence from an emerging market

This paper investigates how a developing stock market responds to US interest rate increases, using Korean firm data. We find that the Fed's sharp rate hike causes the flight to quality of investors in the emerging market. Furthermore, firms with more export sales, higher foreign ownership, and larger market capitalization outperform during a US interest rate shock. We also find that financial flexibility is particularly valuable for small-cap firms when the US aggressively raises interest rates.