Macro-Financial Linkages in the High-Frequency Domain: The Effects of Uncertainty on Realized Volatility

51 Pages Posted: 12 Jan 2020

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Menelaos Karanasos

Brunel University London - Economics and Finance

Stavroula Yfanti

Loughborough University

Date Written: 2019

Abstract

This paper estimates a bivariate HEAVY system including daily and intra-daily volatility equations and its macro-augmented asymmetric power extension. It focuses on economic factors that exacerbate stock market volatility and represent major threats to financial stability. In particular, it extends the HEAVY framework with powers, leverage, and macro effects that improve its forecasting accuracy significantly. Higher uncertainty is found to increase the leverage and macro effects from credit and commodity markets on stock market realized volatility. Specifically, Economic Policy Uncertainty is shown to be one of the main drivers of US and UK financial volatility alongside global credit and commodity factors.

Keywords: asymmetries, economic policy uncertainty, HEAVY model, high-frequency data, macro-financial linkages, power transformations, realized variance, risk management

JEL Classification: C220, C580, D800, E440, G010, G150

Suggested Citation

Caporale, Guglielmo Maria and Karanasos, Menelaos and Yfanti, Stavroula, Macro-Financial Linkages in the High-Frequency Domain: The Effects of Uncertainty on Realized Volatility (2019). CESifo Working Paper No. 8000. Available at SSRN: https://ssrn.com/abstract=3517046

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Menelaos Karanasos

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

Stavroula Yfanti

Loughborough University ( email )

Ashby Road
Nottingham NG1 4BU
Great Britain

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