The policy uncertainty and market volatility puzzle: Evidence from wavelet analysis

Aviral Tiwari, R.K. Jana and David Roubaud ()

Finance Research Letters, 2019, vol. 31, issue C

Abstract: This article communicates a new dimension on the relationship of market volatility (VIX) and Economic Policy Uncertainty (EPU) using the propositions of Pastor and Veronesi (2017) and Das and Kumar (2018) by resorting to the wavelet analysis. We empirically examine the VIX-EPU puzzle and investigate the role of international and domestic policy shocks. We find (a) The VIX-EPU relationship is not always positive and is time-variant; (b) The combined DEPU-USEPU influence on VIX is more coherent to the developed markets; and (c) The VIX of the developed markets are more receptive to USEPU.

Keywords: Uncertainty; Volatility Index (VIX); Economic policy; Market volatility puzzle; Policy shocks (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:31:y:2019:i:c:s1544612318305221

DOI: 10.1016/j.frl.2018.11.016

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