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

2019 ◽  
Vol 8 (3) ◽  
pp. 138 ◽  
Author(s):  
Rangan Gupta ◽  
Mark Wohar
Keyword(s):  
Monetary Policy ◽  
United Kingdom ◽  
Equity Market ◽  
Market Volatility ◽  
Policy Uncertainty ◽  
Stock Market Volatility ◽  
The United Kingdom ◽  
Out Of Sample ◽  
Key Factor ◽  
Risk Free Rate

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. 

scholarly journals Central Bank Independence and the Conduct of Monetary Policy in the United Kingdom

1999 ◽  
Vol 99 (170) ◽  
pp. 1 ◽  
Author(s):  
Hossein Samiei ◽  
Jan Kees Martijn ◽  
◽  
Keyword(s):  
Monetary Policy ◽  
United Kingdom ◽  
Central Bank ◽  
Central Bank Independence ◽  
The United Kingdom

Debt Management and Monetary Policy in the United Kingdom

1969 ◽  
Vol 79 (315) ◽  
pp. 475 ◽  
Author(s):  
W. E. Norton
Keyword(s):  
Monetary Policy ◽  
United Kingdom ◽  
Debt Management ◽  
The United Kingdom

Predicting firm-level volatility in the United States: the role of monetary policy uncertainty

2020 ◽  
Vol 9 (3) ◽  
pp. 167-177
Author(s):  
Matthew W Clance ◽  
Riza Demirer ◽  
Rangan Gupta ◽  
Clement Kweku Kyei
Keyword(s):  
Monetary Policy ◽  
Equity Market ◽  
Retail Trade ◽  
Return Volatility ◽  
Policy Uncertainty ◽  
Firm Level ◽  
Dual Nature ◽  
Predictive Information ◽  
Mining Companies ◽  
Negative Effect

Theoretically, there is exists 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. Most studies, however, focus on aggregate volatility proxies, ignoring the evidence that idiosyncratic risk could also be an important consideration, particularly for under-diversified investors and arbitrageurs. Given this, we examine firm-level annual data for the United States over 1997 to 2016, and show that monetary policy uncertainty does indeed contain significant predictive information over realized and implied volatilities at both the firm- and industry-level. The predictive power of monetary policy uncertainty is found to be robust across the low and high quantiles of volatility with higher policy uncertainty predicting higher firm-level volatility in subsequent periods. While the strongest possible volatility effect is observed in the case of Retail Trade, we observe opposite resuThis paper provides novel evidence for the This paper provides novel evidence for the predictive power of monetary policy uncertainty (MPU) over stock return volatility at the firm level based on a dataset constructed from 9,458 U.S. firms. Our findings show that monetary policy uncertainty contains significant predictive information over realized and implied volatilities at both the firm- and industry-level, with higher policy uncertainty predicting higher volatility in subsequent periods. While the strongest possible volatility effect is observed in the case of Retail Trade, we observe opposite results for Mining with high policy uncertainty predicting lower volatility in this sector. We argue that the dual nature of the underlying commodity for Mining companies, both as a consumption and investment asset, drives the negative effect of policy uncertainty on volatility in this sector. Nevertheless, the findings highlight the predictive information captured by monetary policy actions on the idiosyncratic component of equity market volatility.predictive power of monetary policy uncertainty (MPU) over stock return volatility at the firm level based on a dataset constructed from 9,458 U.S. firms. Our findings show that monetary policy uncertainty contains significant predictive information over realized and implied volatilities at both the firm- and industry-level, with higher policy uncertainty predicting higher volatility in subsequent periods. While the strongest possible volatility effect is observed in the case of Retail Trade, we observe opposite results for Mining with high policy uncertainty predicting lower volatility in this sector. We argue that the dual nature of the underlying commodity for Mining companies, both as a consumption and investment asset, drives the negative effect of policy uncertainty on volatility in this sector. Nevertheless, the findings highlight the predictive information captured by monetary policy actions on the idiosyncratic component of equity market volatility.lts for Mining with high policy uncertainty predicting lower volatility in this sector. We argue that the dual nature of the underlying commodity for Mining companies, both as a consumption and investment asset, drives the negative effect of policy uncertainty on volatility in this sector. Nevertheless, the findings highlight the predictive information captured by monetary policy actions on the idiosyncratic component of equity market volatility.

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