Occurred Uncertainty by ‘News’ in Japanese Short- and Long-Term Financial Markets

Yutaka Kurihara

International Journal of Economics and Financial Research, 2018, vol. 4, issue 4, 93-98

Abstract: This paper empirically examines the role of uncertainty occurred by ‘news’ in Japanese financial markets. A GARCH-MIDAS model is used for estimation. It finds that news-based implied volatility performs well in predicting long-term aggregate market volatilities. A subsample analysis provides that the predictive power of news-based volatility is continuing, as most of the coefficients are positive and significant. So, in general, the news based implied volatility model is associated with high market volatility. Moreover, stock market prices go on rising, different effects that appeared in each subsample period. On the recent period, when Abenomics was conducted, the effect decreased. Also, the effect of exchange rates decrease in short time. When stock prices decrease, volatilities of the stock prices in the past period increase. There is some possibility that markets were too unstable about the movements because of the low prices. Also, the volatility of long-term interest rates increases when the interest rate declines in the recent period under Abenomics. Although interest rates have been quite low in both sample periods, the Bank of Japan (BOJ) started to manage long-term interest rates in the recent period, so market participants seem to begin noticing the movements.

Keywords: Exchange rate; GARCH; Interest rate; Stock price; News; Volatility. (search for similar items in EconPapers)
Date: 2018
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