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Monetary Policy Uncertainty and Volatility Jumps in Advanced Equity Markets

Author

Listed:
  • Elie Bouri

    () (USEK Business School, Holy Spirit University of Kaslik, Jounieh, Lebanon)

  • Konstantinos Gkillas

    (Department of Business Administration , University of Patras, University Campus, Rio, P.O. Box 1391, 26500 Patras, Greece.)

  • Rangan Gupta

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

  • Clement Kyei

    () (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa.)

Abstract

We analyze the role of monetary policy uncertainty in predicting volatility jumps in nine advanced equity markets. The standard linear Granger causality test detects weak evidence of monetary policy uncertainty causing volatility jumps. But given the strong evidence of nonlinearity between jumps and monetary policy uncertainty, we next use a nonparametric causality-in-quantiles test, since the linear model is misspecified. Using this data-driven robust approach we find strong evidence of the role of monetary policy uncertainty in predicting volatility jumps, especially towards the lower end of the conditional distribution.

Suggested Citation

  • Elie Bouri & Konstantinos Gkillas & Rangan Gupta & Clement Kyei, 2019. "Monetary Policy Uncertainty and Volatility Jumps in Advanced Equity Markets," Working Papers 201939, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201939
    as

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    References listed on IDEAS

    as
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    2. Sébastien Fries & Jean‐Stéphane Mésonnier & Sarah Mouabbi & Jean‐Paul Renne, 2018. "National natural rates of interest and the single monetary policy in the euro area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(6), pages 763-779, September.
    3. Lubos Pástor & Pietro Veronesi, 2012. "Uncertainty about Government Policy and Stock Prices," Journal of Finance, American Finance Association, vol. 67(4), pages 1219-1264, August.
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    More about this item

    Keywords

    Stock Market Volatility Jumps; Monetary Policy Uncertainty;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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