Uncertainty and US stock market dynamics

Raquel López, María Caridad Sevillano and Francisco Jareño

Global Finance Journal, 2023, vol. 56, issue C

Abstract: This study investigates the long-term and dynamic relationship between US sector stock returns and risk factors, focusing on uncertainty. Uncertainty risk factors include volatility indices associated with the equity (VIX), fixed-income (TYVIX), oil (OVX), and foreign exchange (EUVIX) markets. The cointegration analysis shows that VIX, TYVIX, OVX, and EUVIX are collectively driving forces of US sector indices in the long run. The causality testing results reveal that uncertainty about long-term interest rates, as proxied by TYVIX, exerts a significant effect on US stock market performance across sectors. Interestingly, in determining the variability of sector stock returns, we find that shocks to the uncertainty of crude oil prices and the exchange rate play a more important role than shocks to their levels. Risk diversification opportunities are identified.

Keywords: Exchange rate; Interest rate; Oil; Sector indices; Uncertainty; Volatility (search for similar items in EconPapers)
JEL-codes: G11 G12 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:56:y:2023:i:c:s1044028322000813

DOI: 10.1016/j.gfj.2022.100779

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