Causal coupling between European and UK markets triggered by announcements of monetary policy decisions

Vittoria Volta and Tomaso Aste

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We investigate high-frequency reactions in the Eurozone stock market and the UK stock market during the time period surrounding European Central Bank (ECB) and the Bank of England (BoE)’s interest rate decisions, assessing how these two markets react and co-move influencing each other. The effects are quantified by measuring linear and nonlinear transfer entropy combined with a bivariate empirical mode decomposition from a dataset of 1 min prices for the Euro Stoxx 50 and the FTSE 100 stock indices. We uncover that central banks’ interest rate decisions induce an upsurge in intraday volatility that is more pronounced on ECB announcement days and there is a significant information flow between the markets with prevalent direction going from the market where the announcement is made towards the other.

Keywords: markets; transfer entropy; risk spillover; causality (search for similar items in EconPapers)
JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2022-03-30
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Published in Royal Society Open Science, 30, March, 2022, 9(3). ISSN: 2054-5703

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:114947

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