Economic Policy Uncertainty and Bank-Level Stock Returns Volatility of the United States: A Mixed-Frequency Perspective

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

No 202444, Working Papers from University of Pretoria, Department of Economics

Abstract: Using generalized autoregressive conditional heteroscedasticity-mixed data sampling (GARCH-MIDAS) model with monthly Economic Policy Uncertainty (EPU) index and daily stock volatility of 149 banks in the United States from August 2000 to August 2023, we show that EPU plays a significant role in predicting bank stock volatility. Across the groups of large, mid, and small cap banks, stock volatility tends to increase in response to EPU, suggesting that growing uncertainty induces higher volatility in bank stocks. EPU has a stronger impact on large-cap banks. The outperformance of the GARCH-MIDAS-EPU model holds in an out-of-sample analysis, regardless of market capitalization and forecast horizons.

Keywords: Economic policy uncertainty (EPU); Bank-level stock returns volatility; GARCH-MIDAS model (search for similar items in EconPapers)
JEL-codes: C32 C53 D80 G10 G21 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2024-10
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.up.ac.za/media/shared/61/WP/wp_2024_44.zp257113.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202444

Access Statistics for this paper

More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta ().