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Macro-Financial Linkages in the High-Frequency Domain: The Effects of Uncertainty on Realized Volatility

Guglielmo Maria Caporale, Menelaos Karanasos and Stavroula Yfanti

No 8000, CESifo Working Paper Series from CESifo Group Munich

Abstract: This paper estimates a bivariate HEAVY system including daily and intra-daily volatility equations and its macro-augmented asymmetric power extension. It focuses on economic factors that exacerbate stock market volatility and represent major threats to financial stability. In particular, it extends the HEAVY framework with powers, leverage, and macro effects that improve its forecasting accuracy significantly. Higher uncertainty is found to increase the leverage and macro effects from credit and commodity markets on stock market realized volatility. Specifically, Economic Policy Uncertainty is shown to be one of the main drivers of US and UK financial volatility alongside global credit and commodity factors.

Keywords: asymmetries; economic policy uncertainty; HEAVY model; high-frequency data; macro-financial linkages; power transformations; realized variance; risk management (search for similar items in EconPapers)
JEL-codes: C22 C58 D80 E44 G01 G15 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ets, nep-mac, nep-ore and nep-rmg
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