Economic Policy Uncertainty and Long-Run Stock Market Volatility and Correlation
(2018)- Abstract
- We use Baker, Bloom, and Davis’s (2016) economic policy uncertainty indices in combination with the mixed data sampling (MIDAS) approach to investigate long-run stock market volatility and correlation, primarily for the US and UK. Long-run US–UK stock market correlation depends positively on US economic policy uncertainty shocks. The dependence is asymmetric, with only positive shocks - increasing uncertainty - being of importance. The US long-run stock market volatility depends significantly on US economic policy uncertainty shocks but not on UK shocks, while the UK long-run stock market volatility depends significantly on both. Allowing for US economic policy uncertainty shocks improves the out-of-sample forecasting of US–UK stock market... (More)
- We use Baker, Bloom, and Davis’s (2016) economic policy uncertainty indices in combination with the mixed data sampling (MIDAS) approach to investigate long-run stock market volatility and correlation, primarily for the US and UK. Long-run US–UK stock market correlation depends positively on US economic policy uncertainty shocks. The dependence is asymmetric, with only positive shocks - increasing uncertainty - being of importance. The US long-run stock market volatility depends significantly on US economic policy uncertainty shocks but not on UK shocks, while the UK long-run stock market volatility depends significantly on both. Allowing for US economic policy uncertainty shocks improves the out-of-sample forecasting of US–UK stock market correlation and enhances portfolio performance. Similar results apply to the long-run correlation between the US and Canada, China, and Germany. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/a03779a7-0ec6-477f-b1b8-f91c93e18e28
- author
- Asgharian, Hossein LU ; Christiansen, Charlotte and Hou, Ai Jun
- organization
- publishing date
- 2018
- type
- Other contribution
- publication status
- unpublished
- subject
- language
- English
- LU publication?
- yes
- id
- a03779a7-0ec6-477f-b1b8-f91c93e18e28
- alternative location
- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3146924
- date added to LUP
- 2018-05-05 12:05:14
- date last changed
- 2018-11-21 21:39:46
@misc{a03779a7-0ec6-477f-b1b8-f91c93e18e28, abstract = {{We use Baker, Bloom, and Davis’s (2016) economic policy uncertainty indices in combination with the mixed data sampling (MIDAS) approach to investigate long-run stock market volatility and correlation, primarily for the US and UK. Long-run US–UK stock market correlation depends positively on US economic policy uncertainty shocks. The dependence is asymmetric, with only positive shocks - increasing uncertainty - being of importance. The US long-run stock market volatility depends significantly on US economic policy uncertainty shocks but not on UK shocks, while the UK long-run stock market volatility depends significantly on both. Allowing for US economic policy uncertainty shocks improves the out-of-sample forecasting of US–UK stock market correlation and enhances portfolio performance. Similar results apply to the long-run correlation between the US and Canada, China, and Germany.}}, author = {{Asgharian, Hossein and Christiansen, Charlotte and Hou, Ai Jun}}, language = {{eng}}, title = {{Economic Policy Uncertainty and Long-Run Stock Market Volatility and Correlation}}, url = {{https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3146924}}, year = {{2018}}, }