The Role of Monetary Policy Uncertainty in Predicting Equity Market Volatility of the United Kingdom: Evidence from over 150 Years of Data

Rangan Gupta and Mark Wohar ()

No 201851, Working Papers from University of Pretoria, Department of Economics

Abstract: Theory suggests a strong link between monetary policy rate uncertainty and equity return volatility, since asset pricing models assume the risk-free rate to be a key factor for equity prices. Given this, our paper uses historical monthly data for the United Kingdom over 1833:01 to 2018:07, to show that monetary policy uncertainty increases stock market volatility within sample. In addition, we show that the information on monetary policy uncertainty also adds value to forecasting out-of-sample equity market volatility.

Keywords: Equity prices; Monetary policy rate uncertainty; Realized volatility; Risk-free interest rates; Volatility forecasting (search for similar items in EconPapers)
JEL-codes: C22 C52 E52 G12 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2018-08
New Economics Papers: this item is included in nep-cba, nep-his and nep-mac
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Journal Article: The role of monetary policy uncertainty in predicting equity market volatility of the United Kingdom: evidence from over 150 years of data (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201851

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