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Spillovers of U.S. market volatility and monetary policy uncertainty to global stock markets

Thomas C. Chiang

The North American Journal of Economics and Finance, 2021, vol. 58, issue C

Abstract: This study investigates the impact of unexpected monetary growth (UΔM) and changes in U.S. monetary policy uncertainty (ΔMPU) on international stock returns while controlling for a change in equity market volatility (ΔEMV) and dividend yield (DY). Testing of North American stock market indices consistently shows that both UΔM and ΔMPU have significant negative impacts on stock returns, which extend the effects to one month lag. Further testing of Europe, Latin America and Asia market indices yields comparable qualitative results. The evidence confirms that an increase in the U.S. MPU is transmitted to international stock markets. This finding supports the international risk/uncertainty premium hypothesis. However, a rise in U.S. unexpected monetary growth as measured by UΔM has a less consistent effect in Latin American and Asian stock markets.

Keywords: Monetary policy uncertainty; Risk-return relation; Uncertainty premium, equity market uncertainty (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.najef.2021.101523

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