A0292
Title: The contribution of economic policy uncertainty to the persistence of shocks to stock market volatility
Authors: Paraskevi Tzika - University of Macedonia (Greece)
Theologos Pantelidis - University of Macedonia (Greece) [presenting]
Abstract: The aim is to examine the contribution of the Economic Policy Uncertainty (EPU) index to the persistence of shocks to stock market volatility. An innovative approach is applied that compares the half-life of a shock in the context of a bivariate VAR model that includes the volatility of stock market returns and EPU, with the half-life of the equivalent univariate ARMA model for the stock market return volatility. The analysis is based on daily data for the UK and the US. The empirical results corroborate that EPU contributes to the persistence of shocks to stock market volatility for both countries. This contribution is higher for the US, where 14.3\% of the persistence of shocks to stock market volatility can be attributed to the EPU index. Several robustness tests support the findings.
