Understanding stock market volatility: What is the role of U.S. uncertainty?

Zhi Su, Tong Fang and Libo Yin ()

The North American Journal of Economics and Finance, 2019, vol. 48, issue C, 582-590

Abstract: This study investigates the spillover of U.S. economic uncertainty on the stock market volatility of six industrialized and three emerging-market countries, using a bivariate GARCH-MIDAS model. We consider three different U.S. uncertainty indices: economic policy uncertainty (EPU), financial uncertainty (FU), and news implied uncertainty (NVIX). Our results indicate that EPU is positively associated with the industrialized countries’ stock market volatility; FU does not appropriately predict long-term stock market volatility; and NVIX is the more powerful predictor of market volatility, with higher NVIX leading to lower volatility. Our study highlights a new channel of market contagion and furthers our understanding of the sources of stock market volatility.

Keywords: U.S. uncertainty; GARCH-MIDAS model; Stock market volatility; Market contagion (search for similar items in EconPapers)
JEL-codes: E44 F37 G15 G17 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (59)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:48:y:2019:i:c:p:582-590

DOI: 10.1016/j.najef.2018.07.014

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