<abstract xmlns="http://www.w3.org/1999/xhtml"><p>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 bidirectional 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.</p></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 bidirectional 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.

Volatility Spillovers between Interest Rates and Equity Markets of Developed Economies

Journal of Central Banking Theory and Practice

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

This study employs the recently developed Lagrange multiplier-based causality-in-variance test by Hafner and Herwartz (2006), to determine the volatility...

Volatility Spillovers between Interest Rates and Equity Markets of Developed Economies

Publié en ligne: 19 sept. 2019

Pages: 39 - 50

Reçu: 22 févr. 2018

Accepté: 22 juin 2018

DOI: https://doi.org/10.2478/jcbtp-2019-0023

Mots clés
Interest Rates, Stock Markets, Volatility Spillover

© 2019 Wilson Donzwa et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Volatility Spillovers between Interest Rates and Equity Markets of Developed Economies

Publié en ligne: 19 sept. 2019

Pages: 39 - 50

Reçu: 22 févr. 2018

Accepté: 22 juin 2018

DOI: https://doi.org/10.2478/jcbtp-2019-0023

Mots clésInterest Rates, Stock Markets, Volatility Spillover

© 2019 Wilson Donzwa et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Mots clés
Interest Rates, Stock Markets, Volatility Spillover