Businessweek points to a paper by Jon Wongswan at the Federal Reserve on the effect of unexpected changes in the Fed funds rate on global stock markets.

Fed economist Jon Wongswan looked at 16 stock indexes from Argentina to the U.S. during the period of September, 1998, through November, 2004 (excluding the emergency Sept. 17, 2001, meeting after the terrorist attacks). A surprise 25 basis-point cut in the federal funds rate caused stocks to rise, on average, as little as 0.5% in Malaysia to as much as 2.5% in Korea and Hong Kong. U.S. equities tended to climb about 1.8%, and the German bourse by 1%. Drops of similar magnitudes show up when the unexpected move is a rate hike.

You can find a link to the paper here.

According to calculations by macroblog the Fed funds futures are still pointing to a 4.50% rate by January. The question for investors is: What is the next unexpected change in the Fed funds rate going to be?