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Price Jumps in Developed Stock Markets: The Role of Monetary Policy Committee Meetings

Author

Listed:
  • Rangan Gupta

    () (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Chi Keng Marco Lau

    () (Newcastle Business School, Northumbria University, Newcastle, UK)

  • Ruipeng Liu

    () (Department of Finance, Deakin Business School, Deakin University, Melbourne, Australia)

  • Hardik A. Marfatia

    () (Department of Economics, Northeastern Illinois University, Chicago, USA)

Abstract

In this paper, we analyze the degree of occasional large price changes and extreme volatility – known as jump intensity – in the Euro area, Japan, the UK and the US. We also measure the reaction of jump intensity in these markets to the US Federal Reserve meetings as well as of the country’s own monetary policy meetings. The results indicate that the conditional jump intensity in all the markets follows a highly persistent process. Evidence suggests that the US monetary policy positively impacts the jump intensity in the case of the UK, Euro, and the US, including in the sub-sample periods found by the structural break test. Moreover, in assessing the joint effects, we find that the US continues to maintain the central role in driving the jump intensities, with it having even a greater role than monetary policy of the country itself.

Suggested Citation

  • Rangan Gupta & Chi Keng Marco Lau & Ruipeng Liu & Hardik A. Marfatia, 2017. "Price Jumps in Developed Stock Markets: The Role of Monetary Policy Committee Meetings," Working Papers 201727, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201727
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    References listed on IDEAS

    as
    1. Ben S. Bernanke & Kenneth N. Kuttner, 2005. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," Journal of Finance, American Finance Association, vol. 60(3), pages 1221-1257, June.
    2. Liao, Yin, 2013. "The benefit of modeling jumps in realized volatility for risk prediction: Evidence from Chinese mainland stocks," Pacific-Basin Finance Journal, Elsevier, vol. 23(C), pages 25-48.
    3. Michael Ehrmann & Marcel Fratzscher, 2009. "Global Financial Transmission of Monetary Policy Shocks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(6), pages 739-759, December.
    4. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    5. Hausman, Joshua & Wongswan, Jon, 2011. "Global asset prices and FOMC announcements," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 547-571, April.
    6. Li, Jie & Li, Guangzhong & Zhou, Yinggang, 2015. "Do securitized real estate markets jump? International evidence," Pacific-Basin Finance Journal, Elsevier, vol. 31(C), pages 13-35.
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    8. Apergis, Nicholas, 2015. "The role of FOMC minutes for US asset prices before and after the 2008 crisis: Evidence from GARCH volatility modeling," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 100-107.
    9. Dan W. French & Andrew A. Lynch & Xuemin (Sterling) Yan, 2012. "Are Short Sellers Informed? Evidence from REITs," The Financial Review, Eastern Finance Association, vol. 47(1), pages 145-170, February.
    10. Wongswan, Jon, 2009. "The response of global equity indexes to U.S. monetary policy announcements," Journal of International Money and Finance, Elsevier, vol. 28(2), pages 344-365, March.
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    15. Kishor, N. Kundan & Marfatia, Hardik A., 2013. "The time-varying response of foreign stock markets to U.S. monetary policy surprises: Evidence from the Federal funds futures market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 1-24.
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    18. repec:pri:cepsud:161blinder is not listed on IDEAS
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    Cited by:

    1. Shamrez Ali, Sundus Waqar, Muhammad Haris, 2019. "The Nexus between Political & Institutional Corruption Events with the Stock Market: A Study of Pakistan," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 4(1), pages 59-71, March.

    More about this item

    Keywords

    Jump intensity; Developed stock markets; Monetary policy committee meeting dates;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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