The role of monetary policy uncertainty in predicting equity market volatility of the United Kingdom: evidence from over 150 years of data

Rangan Gupta and Mark Wohar ()

Economics and Business Letters, 2019, vol. 8, issue 3, 138-146

Abstract: Theory suggests a strong link between monetary policy rate uncertainty and equity return volatility, since asset pricing models assume the risk-free rate to be a key factor for equity prices. Given this, our paper uses historical monthly data for the United Kingdom over 1833:01 to 2018:07, to show that monetary policy uncertainty increases stock market volatility within sample. In addition, we show that the information on monetary policy uncertainty also adds value to forecasting out-of-sample equity market volatility. Â

Date: 2019
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Working Paper: The Role of Monetary Policy Uncertainty in Predicting Equity Market Volatility of the United Kingdom: Evidence from over 150 Years of Data (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ove:journl:aid:13257

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