Monetary Policy and Speculative Spillovers in Financial Markets

Riza Demirer, David Gabauer, Rangan Gupta and Qiang Ji

No 202032, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper examines the role of monetary policy (MP) of the United States (U.S.) as a driver of connectedness patterns in speculative activities in financial markets. Examining measures of speculation in four major markets including gold, equities, Treasury bonds and crude oil, we show that speculative activities can spill over across markets with the stock market generally serving as the main transmitter of speculative shocks. While unconventional MP is associated with greater connectedness of speculative activities in financial markets, we also find that unconventional (conventional) MP drives gold (financial assets) to serve as a net transmitter of speculative shocks to the other markets. The findings establish an important link between the monetary policy signals and trading behavior in financial markets with significant policy implications.

Keywords: Monetary Policy; Speculation; TVP-VAR; Dynamic Connectedness; Quantiles (search for similar items in EconPapers)
JEL-codes: C32 E32 F42 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2020-04
New Economics Papers: this item is included in nep-cba and nep-mac
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Journal Article: Monetary policy and speculative spillovers in financial markets (2021)
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