Energy-Related Uncertainty and International Stock Market Volatility

Afees Salisu, Ahamuefula Ogbonna, Rangan Gupta and Elie Bouri ()
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Elie Bouri: School of Business, Lebanese American University, Lebanon

No 202336, Working Papers from University of Pretoria, Department of Economics

Abstract: The aim of this paper is to predict the daily return volatility of 28 developed and developing stock markets based on the monthly metrics of corresponding country and global energy-related uncertainty indexes (EUIs) recently proposed in the literature. Using the generalized autoregressive conditional heteroscedasticity-mixed data sampling (GARCH-MIDAS) framework, the results show that country-specific and global EUIs have predictive powers for stock returns volatility for the in-sample periods, with increased levels of EUIs exhibiting the tendency to heighten volatility. This predictability also withstands various out-of-sample forecast horizons, implying that EUI is a statistically relevant predictor of stock returns volatility in the out-of-sample analysis. Moreover, the forecast precision of the GARCH-MIDAS model is improved by incorporating global EUIs relatively more than country-specific EUIs. Our findings are robust to the choice of EUI proxies and sample definition. They have important implications for investors and policymakers concerned with stability in the global financial system and economy.

Keywords: Monthly energy-related uncertainty index, daily stock returns volatility, developed and developing economies, GARCH-MIDAS; predictions (search for similar items in EconPapers)
JEL-codes: C32 C53 G15 G17 Q43 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2023-12
New Economics Papers: this item is included in nep-ene, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Energy-related uncertainty and international stock market volatility (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202336

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