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Volatility Spillovers between Interest Rates and Equity Markets of Developed Economies

Author

Listed:
  • Wilson Donzwa

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa; IPAG Business School, Paris, France)

  • Mark E. Wohar

    (College of Business Administration, University of Nebraska at Omaha, Omaha, USA; School of Business and Economics, Loughborough University, Leicestershire, UK)

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, the euro area, the 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 covering the pre- and during-ZLB periods.

Suggested Citation

  • Wilson Donzwa & Rangan Gupta & Mark E. Wohar, 2019. "Volatility Spillovers between Interest Rates and Equity Markets of Developed Economies," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 8(3), pages 39-50.
    • Handle: RePEc:cbk:journl:v:8:y:2019:i:3:p:39-50
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    References listed on IDEAS

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    Cited by:

    1. Hossein Hassani & Mohammad Reza Yeganegi & Rangan Gupta, 2020. "Historical Forecasting Of Interest Rate Mean And Volatility Of The United States: Is There A Role Of Uncertainty?," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 15(04), pages 1-17, December.
    2. Ruipeng Liu & Rangan Gupta & Elie Bouri, 2021. "Conventional and Unconventional Monetary Policy Rate Uncertainty and Stock Market Volatility: A Forecasting Perspective," Working Papers 202178, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Interest Rates; Stock Markets; Volatility Spillover.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G1 - Financial Economics - - General Financial Markets

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