IDEAS home Printed from https://ideas.repec.org/a/eee/econom/v256y2026ipbs030440762600059x.html

Testing for differences in high-frequency network connectedness from variance decompositions

Author

Listed:
  • Bevilacqua, Mattia
  • Ellington, Michael
  • Hizmeri, Rodrigo

Abstract

We develop a Bayesian Wald-type test for detecting temporal differences in connectedness from variance decompositions, and establish the asymptotic normality of impulse response functions and variance decomposition matrices at fixed local time points. The resulting test statistic is asymptotically χ2 distributed under the null hypothesis and performs well in Monte Carlo simulations. Applying our methodology to high-frequency options data on sectoral exchange-traded funds (ETFs) from January 2013 to June 2023, we identify and quantify monetary policy surprises following Federal Open Market Committee (FOMC) announcements. Our empirical results indicate that total connectedness among sectoral ETF implied volatilities increases significantly following FOMC announcements, with these elevated connectedness levels persisting for approximately one hour on days with monetary policy surprises. Our findings indicate more than one-fifth of FOMC announcements surprise financial markets.

Suggested Citation

  • Bevilacqua, Mattia & Ellington, Michael & Hizmeri, Rodrigo, 2026. "Testing for differences in high-frequency network connectedness from variance decompositions," Journal of Econometrics, Elsevier, vol. 256(PB).
    • Handle: RePEc:eee:econom:v:256:y:2026:i:pb:s030440762600059x
    DOI: 10.1016/j.jeconom.2026.106238
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S030440762600059X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jeconom.2026.106238?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:256:y:2026:i:pb:s030440762600059x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jeconom .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.