THE RESPONSE OF THE SET50 INDEX TO POLICY INTEREST RATE ANNOUNCEMENTS: EXPECTED VS. UNEXPECTED DECISIONS

Abstract

This study investigates the response of SET50 index return volatility to the Bank of Thailand policy rate announcements from 2011 to 2025. The dataset covers a total of 110 events across short-term (+-3 days) and long-term (+-10 days) event windows. The analysis compares expected decisions versus unexpected decisions, while evaluating market efficiency under the semi-strong form of the Efficient Market Hypothesis (EMH). Using Paired Samples T-Test and Independent Samples T-Test statistics, the results show no statistically significant difference at the 0.05 level in volatility between pre- and post-announcement periods for both time horizons. Additionally, while volatility levels between expected decisions and unexpected decisions do not differ significantly in the short-term window, a statistically significant difference at the 0.10 level is observed in the long-term window (+-10 days), where unexpected decisions exhibit higher volatility. Finally, testing market efficiency through absolute returns shows that volatility increases on the announcement day and significantly normalizes by Day +2. These findings indicate that the Thai capital market absorb monetary policy information within 1-2 trading days, supporting the semi-strong form EMH.

Keywords: Policy Interest Rate, Market Expectations, Volatility, Event Study, SET50 Index, Market Efficiency