Volatility Spillovers between Interest Rates and Equity Markets of Developed Economies: A Note

Wilson Donzwa (), Rangan Gupta and Mark Wohar ()
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Wilson Donzwa: University of Pretoria, Pretoria, South Africa

No 201764, Working Papers from University of Pretoria, Department of Economics

Abstract: This study employs the recently developed Lagrange multiplier-based causality-in-variance test by Hafner and Herwartz (2006), to determine the volatility spillovers between interest rates and stock returns for the US, Euro Area, UK and Japan. The investigation pays careful attention to volatility transmissions between stock returns and interest rates before and after these economies reached the Zero Lower Bound (ZLB), which is permitted via the use of Shadow Short Rates (SSR), used as a proxy for monetary policy decisions. The results based on daily data, imply that while bi-directional causality is observed, the volatility spillover from interest rates to stock markets are more prominent for the full-sample, as well as the sub-samples cover the pre- and during-ZLB periods. In addition, the relationship between the volatility spillovers, based on a Grey correlation analysis, was found to be consistently positive over time.

Keywords: Interest Rates; Stock Markets; Volatility Spillover (search for similar items in EconPapers)
JEL-codes: C32 C58 E43 G1 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2017-09
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201764

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