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

• Gupta, Rangan ^[1] ; Wohar, Mark ^{[2] [3]}
  1. [1] University of Pretoria

     University of Pretoria

     City of Tshwane, Sudáfrica

     
  2. [2] University of Nebraska at Omaha

     University of Nebraska at Omaha

     City of Omaha, Estados Unidos

     
  3. [3] Loughborough University

     Loughborough University

     Charnwood District, Reino Unido

     

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• Localización: Economics and Business Letters, ISSN-e 2254-4380, Vol. 8, Nº. 3, 2019, págs. 138-146
• Idioma: inglés
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• Dialnet Métricas: 1 Cita
• Resumen

  • 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.