Economics at your fingertips  

Who drives the dance? Further insights from a time‐frequency wavelet analysis of the interrelationship between stock markets and uncertainty

Amine Ben Amar () and Jean‐Étienne Carlotti

International Journal of Finance & Economics, 2021, vol. 26, issue 1, 1623-1636

Abstract: Using multivariate continuous wavelet tools this paper empirically investigates the strength and the magnitude of the relation between two measures of uncertainty, namely economic policy uncertainty index and implied volatility index, and stock market returns in Europe and United States. The multiple wavelet coherency not only highlights a significant contagion effect between the US and the European stock markets in times of crisis, but also indicates that the intensity of the interdependence between the stock markets and uncertainty indices is more persistent in times of stress and crisis periods. The results also indicate that, both in the U.S. and Europe, when partial coherencies are significant, the partial phase‐differences consistently highlight a negative co‐movement between the stock markets returns and their corresponding implied volatilities, with the implied volatility indices leading the stock markets for most of the time span and across all frequency bands at which the stocks and the fear indices have co‐moved significantly. The wavelet partial gain suggests that the European stock market is relatively more resilient than the U.S. stock market.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2021-09-03
Handle: RePEc:wly:ijfiec:v:26:y:2021:i:1:p:1623-1636