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The policy uncertainty and market volatility puzzle: Evidence from wavelet analysis

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  • Tiwari, Aviral Kumar
  • Jana, R.K.
  • Roubaud, David

Abstract

This article communicates a new dimension on the relationship of market volatility (VIX) and Economic Policy Uncertainty (EPU) using the propositions of Pastor and Veronesi (2017) and Das and Kumar (2018) by resorting to the wavelet analysis. We empirically examine the VIX-EPU puzzle and investigate the role of international and domestic policy shocks. We find (a) The VIX-EPU relationship is not always positive and is time-variant; (b) The combined DEPU-USEPU influence on VIX is more coherent to the developed markets; and (c) The VIX of the developed markets are more receptive to USEPU.

Suggested Citation

  • Tiwari, Aviral Kumar & Jana, R.K. & Roubaud, David, 2019. "The policy uncertainty and market volatility puzzle: Evidence from wavelet analysis," Finance Research Letters, Elsevier, vol. 31(C).
    • Handle: RePEc:eee:finlet:v:31:y:2019:i:c:s1544612318305221
    DOI: 10.1016/j.frl.2018.11.016
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    References listed on IDEAS

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