Comparing U.S. and European market volatility responses to interest rate policy announcements

Kevin Krieger, Nathan Mauck and Joseph Vazquez

International Review of Financial Analysis, 2015, vol. 39, issue C, 127-136

Abstract: We examine the responses of U.S. (VIX) and German (VDAX) implied volatility indices to the announcement of interest rate policy decisions by the Federal Open Market Committee (FOMC) and the European Central Bank (ECB). We present new findings that indicate that VDAX declines on FOMC meeting days, a result that holds for nearly all announcement types. VDAX declines on ECB meeting days in which there is a negative rate surprise, or no surprise, and is unrelated to ECB meeting days otherwise. We confirm prior findings that VIX declines on FOMC meetings days regardless of the content of the meeting, but we also find that VIX is unrelated to ECB announcements. Results from our structural VAR analysis indicate that VIX (VDAX) responses to FOMC decisions are related to risk aversion (uncertainty). Taken collectively, our results indicate a prominent position for the FOMC in determining implied volatility levels worldwide.

Keywords: FOMC; ECB; VIX; VDAX; Monetary policy; Volatility spillover (search for similar items in EconPapers)
JEL-codes: E44 G14 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (8)

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Working Paper: Comparing U.S. and European Market Volatility Responses to Interest Rate Policy Announcements (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:39:y:2015:i:c:p:127-136

DOI: 10.1016/j.irfa.2015.03.003

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